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113u0tne00 Series 



MODERN INDUSTRIALISM 



A PRACTICAL BOOK BY A PRACTICAL MAN* 



The Work of Wall Street. 

By Sereno S. Pratt. i2mo. Cloth, $1.25 net; 
postage, 12 cents additional. 

" In ' The Work of Wall Street ' Sereno S. Pratt has not contented 
himself with the authorship of the best book published on the mech- 
anism, personality, function, operations, and ramifications of the finan- 
cial Isis and Osiris of the western world, but has written it in a style 
which for clearness and interest is fascinating. He has drawn the veil 
from what to so many has been a mystery, so that one may easily see 
the wheels revolve, almost hear them click. . . . Those whose libraries 
or tastes include the works of such writers as Bryce, Jevons, Sumner, 
and White will surely discover a niche beside them for ' The Work of 
Wall Street.' "—Albert C. Stevens (former Editor Bradstreet \r) in 
Newark Evening News. 

" A book that can not be too highly recommended to those who 
desire to know what Wall Street is and how it does its work." — Wall 
Street Journal. 

" It is one of the best books on Wall Street that has ever been 
published." — Brooklyn Eagle. 

" A well-written and generally thorough digest of the operations 
of the financial district." — New York Sun. 

" It has no equal." — New York Press. 

" The most fascinating presentation possible of a subject of the 
utmost interest to business men and students of economics." — Chicago 
Record- Her aid. 

" Clear, simple, direct, straightforward, impartial, and, above all, 
informing. . . . Mr. Pratt has done a real service in describing the 
things which the stock exchange accomplishes, and its usefulness to 
the nation at large." — Boston Herald. 

" The author knows the ins and outs of the New York stock market, 
and the book is veritably a mine of knowledge about matters very 
little understood by the public. . . . Particularly valuable are Mr. 
Pratt's explanations of the jargons of the street — of words and phrases 
which to most persons not actively engaged in the stock business are 
quite unintelligible." — Philadelphia Ledger . 

D. APPLETON AND COMPANY, NEW YORK. 




o 









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Rails and Railway Materi 

Locomotives, Too/s.Mach/ner{ 

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CHINESE 

Cotton Goods, Flour, f 
Scientific Apparatus 

" M P I, R E , 
Hardware, Tools, j 
Furniture, 
Canned Goods, 
Sewin& Machines 




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■^Cotton Goods, Toots, 
^Locomotives and Rails, 
£ Cycles, Scientific 
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j? /Vails, Furniture, 
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crx Paper Goods, 
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STATES WITH FOREIGN COUNTRIES. 



MODERN 
INDUSTRIALISM 

AN OUTLINE OF THE INDUSTRIAL ORGANIZATION 

AS SEEN IN THE HISTORY, INDUSTRY, AND 

PROBLEMS OF ENGLAND, THE UNITED 

STATES, AND GERMANY 



BY 



FRANK L. McVEY, Ph.D. 

PROFESSOR OF POLITICAL ECONOMY IN THE UNIVERSITY 
OF MINNESOTA 



ILLUSTRATED 




NEW YORK 
D. APPLETON AND COMPANY 

1904 




» i 



TRADE MAP, SHOWING TRADE OF UNITED STATES WITH FOREIGN COUNTRIES. 



OCT 14 1904 



^ Oowrffht Entry / 
OLA8S CX.XXO. Na 
/COW B 






^ 






COPTKIGHT, 1904, BY 

D. APPLETON AND COMPANY 



Published October, 190^ 



d> 






THIS BOOK 
IS DEDICATED TO 

ARTHITK TWINING HADLEY, LL. D. 

PRESIDENT OF YALE UNIVERSITY 

WHOSE TEACHING AND WRITINGS HAVE BEEN 

A CONSTANT SOURCE OF INSPIRATION 

TO THE AUTHOR 



PREFACE 



It would have been a difficult task to write the history 
of Modern Industrialism in a work of five or six volumes. 
It is a still bolder undertaking to attempt it within the 
pages of a single book. Believing firmly in the necessity 
of a clear understanding of what our complicated indus- 
trial society means, I have attempted neither a work of 
many volumes nor a compact history of modern industry, 
but have endeavored to show in its essentials only what 
that history has been in three countries, how complicated 
industry is in the machinery of production, exchange and 
distribution, and finally what problems arise from the very 
nature of the complicated organization with which states 
are forced to deal. To facilitate this treatment the book 
is divided into the three parts: History, Industry, and 
Administration. 

It is still further my belief that in our present indus- 
trial society are to be found all the essentials of the future 
state. If a people know what these are, to what purpose 
they may be utilized, how strong and how weak funda- 
mental principles of organization are, they may look with 
greater confidence to the future of the industrial state. 
As a people, the inhabitants of the United States are con- 
fronted by more serious problems than the people of Great 
Britain or Germany. Our very institutions, our democ- 

vii 



Vlll PREFACE 

racy, free land, and great resources make them more dif- 
ficult of solution. The great corporation, powerful trade 
union, extensive railroads, and vast distributive system 
complicate the problems still more. The state is involved, 
is, in fact, compelled to take some attitude toward these 
problems. Shall it interfere only, or shall it regulate, 
control or own? These are questions which the citizen 
must answer in the near future. It is his to know, and 
if the present book brings him to a larger understanding, 
my purpose has been accomplished. 

In the writing I have resorted for material to maga- 
zine, periodical, newspaper, book, reports and observa- 
tion; in fact, to anything that would furnish facts about 
the changing and shifting, yet growing, industrial organ- 
ization. That some errors should creep into a book deal- 
ing with so great a subject was inevitable, but I have 
endeavored to guard against them by verification when- 
ever possible. 

To Professor E. A. Ross of the University of Ne- 
braska I am indebted for many suggestions and correc- 
tions. His kindness in reading the proofs has resulted in 
greater accuracy of statements at many points. From 
my colleagues, Professors West and Schaper, I have re- 
ceived occasional help and much encouragement. To 
Professors Appleby and Van Barnevelt of the University 
of Minnesota School of Mines and Mr. W. B. Chamber- 
lain of the Minneapolis Journal, I am under obligation for 
some of the photographs used in Part I, Chapter I, 
Part II, Chapters I, III. 

Frank L. McVey. 

University of Minnesota, 
August 20, 1904. 



CONTENTS 



PAET I 
HISTORY 



CHAPTER I 

A SURVEY 

PAGES 

The Old and New Production — Meaning of Modern Industrialism 
— Comparison of England, the United States, and Germany — 
Events in the Century — Advantage Possessed by England — 
Change in the Organization of Industry — Growth in Mineral 
Wealth, Mechanical Power, Manufacturing— The United States 
— Inventions — Investments and Large Organization — Possible 
National Specialization 3-19 

CHAPTER II 

INDUSTRIAL CHANGES IN ENGLAND SINCE 1760 

Contrast Between the Old and the New England — Causes of the In- 
dustrial Revolution — Periods in the Revolution — Changes 
Produced — The Doctrine of Laissez Faire — Agriculture — 
Growth of England, 1840 — Development of the Iron and Steel 
Industries — Legislation — The Coming of the Railroad — Suez 
Canal — Currency — Colonization — The Growth of Democracy — 
Trade Unions — A Completed Organization .... 20-41 

CHAPTER III 

INDUSTRIAL EVOLUTION OF AMERICA 

Contrast with England — Evolution of Industry on a Free Land 
Basis — Changing and Shifting Frontiers — Domestic Industries 
— Delay in Manufacturing — Attitude of England — The Early 
Growth of the Factory System— The War of 1812— The Tariff 



X CONTENTS ' 

PAGES 

— Influences on Industrial Conditions — The Growth of the West 
— Internal. Improvements — Conditions in the South — Social 
Conditions, 1860 — Rapid Progress After the Civil War — Stages 
in the Development of Transportation — Conflict Between the 
Canal and the. Railroad — The Crisis of 1873 — The Railroad 
Conflict — Legislation — Excessive Competition and Combination 
— Labor Organizations — Anti-Trust Act — A Completed Na- 
tional Organization 42-67 

CHAPTER TV 

THE RISE OF GERMANY 

Difficulties in the Way of German Unity — Population— Concentra- 
tion in Towns and Cities — Change in Agricultural Population 
— Manufacturing and Commerce — Contrast with the Germany 
of 1868 — Resources and the Means of Transportation — Regula- 
tion of the Railroad — Scientific Methods in Production — Citi- 
zenship and National Progress — Establishment of Commercial 
Schools — Relation of the Government to Industry — History of 
the German Empire — Influence of War on the German People 
— Colonial Policy — Socialist Movement — The Empire's Fu- 
ture 68-86 



PAET II 
INDUSTRY 



CHAPTER I 

EXTRACTIVE INDUSTRIES 

Meaning of Industry — Agriculture in the United States — Advance- 
ment Made — English Agriculture, Its Character and Decline- 
German Agriculture — Methods of Cultivation — Forestration, 
the Value of the Product — Stages of the Industry — Forest 
Management — Mining, Coal, and Iron Fields in England, the 
United States and Germany — Changes in Mining Methods — 
Fisheries — The Law of Diminishing Returns — Monopoly Con- 
trol over Resources 89-114 



CONTENTS XI 

CHAPTER II 

TRANSPORTATION 

PAGES 

Basis of Transportation in England, United States, and Germany — 
Principles of the Location of Cities — The Railway as the Most 
Important Element — Reasons and Examples of Advancement 
— Transportation Problems — Elevators — Canals — Deep-Sea 
Transportation — Control of the Means of Transportation . 115-132 



CHAPTER III 

MANUFACTURE 

The National Struggle and Commercial Greatness — The Factory 
System Defined — Tools and Machines — Ownership of Materials 
— Development of the Factory — Union of Various Handicrafts 
— Co-operation of Artificers (of Same Handicraft) — Specializa- 
tion — Standardization — Interchangeable Parts — Localization 
of Industry — Large Production — Division of Labor — By-prod- 
ucts 133-156 



CHAPTER IV 

FORMS OF INDUSTRIAL ORGANIZATION 

Organization of Capital and Labor — Demand for Large Amounts of 
Capital — Partnership — Joint-Stock Company — Corporation — 
The United States Steel Company — The Large Corporation — 
Voting Trust— The Cartel — The E. J. Smith Companies— Rail- 
road Organization — Promoter and Underwriter — The Labor 
Factor— The Trade Union— Co-operation .... 157-175 



CHAPTER V 

COMMERCIAL INSTITUTIONS 

The Unity of Organization — Widening of the Market — Changes in 
Ownership— Facilities, New and Old— The Speculator— The 
Bank and the Issue of Credit — Bill Brokers — Clearing Houses 
— Bills of Exchange, Domestic and Foreign — Stocks and 
Bonds and Stock Exchanges — Disturbances in the Industrial 
World 176-194 



Xll CONTENTS 

PAKT III 
ADMINISTRATION 



CHAPTER I 

FUNDAMENTAL PROBLEMS 

PAGES 

Problems and the Outcome of National Existence— Nature of the 
Problem — Strength of the National Organization — Confusion 
of the Issue — A Domestic Problem — Foundation of Modern 
Society — Individualist View of the Industrial System — An Au- 
tomatic System — Two Fields of Activity — The Best Fitted to 
Survive — Competition the Outcome — Forces Against the Worst 
Tendencies — Equality — Efforts to Modify It by Trade Union, 
Co-operation, Socialism — Combination of Capital and Labor — 
Options Open to Society . 197-215 



CHAPTER II 

INTERFERENCE 

Different Views Relating to State Functions — The Limits of the 
Problem — Definition of Terms — Laissez Faire and Interference 
— The Common Law — The Nature of a Contract — Competition 
— Restrictions Upon by Law — Freedom of Contract— Control 
of Corporations — Monopolies and Conspiracies — The Law a 
Sufficient Remedy — The Use of the Injunction — Interference 
and Equality — The Individualist State and Its Meaning . 216-234 



CHAPTER III 

REGULATION 

Results of Unlimited Competition — Modification of the Principle — 
The Necessity of State Regulation — Enumeration of the Prob- 
lems — Regulation in England — Attempts at Regulation in the 
United States— Anti-Trust Acts— Laws Based on the Common 
Law— Regulation of Industry in Germany— Differences in the 
Methods Employed— Preventive and Not Prohibitive Regula- 
tion 235-255 






CONTENTS xiii 

CHAPTER IV 

GOVERNMENT OWNERSHIP 



PAGES 



Reasons for Advocacy — Increased Social Power of the State — Ad- 
vantages — Government Ownership Limited — Operation of Rail- 
roads — Prussia — Australian States — India — New Zealand — 
Government Ownership of Telegraphs — Rate Making and 
Administration — Lack of Improvements in State Owned Rail- 
roads — Tests of Success — Prussian Administration — Difficulties 
in Australia — Advantages and Disadvantages of State Owner- 
ship 256-272 

CHAPTER V 

CONCLUSION 

Relation of the Different Parts of the Book — Great Problems the 
Outcome of National Organization — Equality of Opportunity — 
Social Movement — Immediate Problems — Method of Dealing 
with Them — Attitude of States — Individualism and Socialism 
— Problem in America, in England, in Germany — Suffrage as a 
Solution — Advantages of the Present System — Necessity of 
Regulation 273-291 

Index 293 



LIST OF ILLUSTRATIONS 



PAGE 

Trade map, showing trade of United States with foreign coun- 
tries ......... Frontispiece 

The Savannah 6 

The Oceanic 14 

Modern newspaper printing and folding machinery . . . .18 

Early English factory near Preston, Lancashire .... 25 

Map showing leading products of British Isles 32 

The " Rocket. " 35 

Industrial map of the United States 57 

Industrial map of Germany 73 

Logging by steam power 99 

Saw mill, showing log booms 103 

A modern excavating machine . 106 

A cyanide mill at Mercer, Utah 108 

Hoisting engine Ill 

Landing at top of a mine shaft 113 

A flour train of forty cars, showing specialization of transportation 121 

A dredge used in gold mining 124 

A modern elevator 126 

One of the largest paper machines in the world .... 141 

Minneapolis milling district, an example of localization . . . 149 

Dynamo room of a modern electric plant 152 

The Bank of England, London 185 

The New York Clearing-house . 189 

xv 



PART I 
HISTORY 



CHAPTEK I 



A SURVEY 



The year 1776 stands in the books of history as 
famous in achievement; in it the Declaration of Inde- 
pendence was written and the " Wealth of Nations " pub- 
lished. But it likewise marks the line between the old 
and the new in the system of production. With it begin 
the manufacture by machine, the decline of cottage in- 
dustry, the awakening of democracy and the dawn of 
Modern Industrialism. 

The last term designates that stage of society in which 
men, machines and capital are massed and marshaled to 
the task of creating goods. In its completed form such 
a society is national in type, highly specialized in skill, 
wonderful in resources, and powerful in inventions. Great 
ships, well organized railroads, banks, commercial houses 
and systems of credit make possible the supplementary 
work of transportation, and the distribution of wealth 
in the industrial society. 

To arrive at such a result is the task of years and 
centuries. The nation that has. thrown aside the relics 
of a feudal time, emancipated its labor, revised its trade 
laws, invented machinery, organized a factory system, 
opened its natural resources, built railroads, constructed 
steam-vessels and amassed capital is within the system 
of modern industrialism. Production in such a nation 
is no longer for village and countryside, but for the mar- 

3 



4 MODERN INDUSTRIALISM 

kets of the world. The raw material that remained un- 
disturbed in hill and mountain is dragged in boat and 
train to the sea, where, in manufactured form, it is sent 
in giant vessels to foreign lands. With progress like this 
come many problems — no longer the comparatively sim- 
ple ones of an agricultural society, but the problems com- 
plicated by domestic difficulties and new world elements. 
The solution of these, as well as the standing and power 
of the completed national organization, depends upon the 
mutual adjustment of the several factors in production. 

Many elements enter a national organization, polit- 
ical and industrial. There must be a thoroughly amalga- 
mated people possessing a common language, and residing 
in a definite territory. Their institutions must have become 
well established and capable through their agency of 
maintaining law and order. In such a society industry 
and commerce reach a high degree of efficiency. The 
territory of the nation is covered with railroads and 
equipped with the modern conveniences for carrying on 
commerce. The political organization is well established 
and fully evolved, having passed the period of experi- 
ment. As examples of this statement England, after the 
Reform Bill of 1832,* the United States since the Civil 
War, and Germany after the Franco-Prussian contest may 
be cited. Each nation since the events mentioned has 
pushed its industrial organization with amazing rapidity, 
opened its natural resources, and producing for a world's 
market at the same time attempts to meet the indus- 
trial problems that arise with the aid of the political 
organization. 

So long as one nation alone had reached the stage 
of a completed organization there was no great world 
contest, but with two or three such national societies a 

* The bill of 1832 was followed by the more comprehensive acts of 1867 
1868, 1884-5 and 1888. The first bill was the beginning of modern demo- 
cratic England. 



A SURVEY O 

conflict, national in character, was sure to take place. 
To-day, three nations have made the greatest advance 
toward the completed form — England, the United States 
and Germany. 

England entered the nineteenth century with much 
of the old clinging to her; her land tenure, cottage sys- 
tem, navigation laws, corn laws, were all relics of former 
conditions. These her people have bravely cast aside for 
freedom of trade, a factory system, and a new land tenure. 
On the other hand, the " Fatherland " has clung to the 
old and reared on a foundation hoary with age a struc- 
ture of modern industrialism. In this land remain an 
agriculture, a land tenure, and a division of labor, ancient 
in character; but within a limited number of industries 
the spirit of modern production has controlled to such a 
degree, that Germany stands prominently among the lead- 
ers of industry. The United States began her career as 
a modern producing nation almost without restriction. 
~No ancient usage bound her people; in but few instances 
did feudal dues and old land tenures exist. Nature alone, 
in her heavy-handed bounty, imposed burdens. Men 
were free to do that which instinct, will and reason dic- 
tated. But this freedom brought with it intensified prob- 
lems of an economic and political nature. It is, then, 
to these three — England, the United States and Germany 
— that we may look for the most extended forms of mod- 
ern industrialism. 

The wonderful century in which these results were 
accomplished, is marked by definite stages of progress. 
By the opening of the century, Wyatt had created his 
roller spinner, Kay his fly shuttle, Paul the carding ma- 
chine, Hargreave the spinning jenny, Arkwright the spin- 
ning frame, Crompton the mule, Cartwright the power 
loom, Whitney the cotton gin, and Watt the steam en- 
gine. The very foundation of a factory system was 
thus in the sole possession of England. The Napoleonic 



b MODERN INDUSTRIALISM 

wars served to strengthen England's monopoly on the 
textile machines. As these wars closed Stephenson added 
to her wealth of inventions another great device — the 
locomotive. Steam was thus used in the double capacity 
of driver and motive power. 

In 1819 the first steamship, the forerunner of mighty 
ocean carriers, crossed the Atlantic. By this new means 
of communication the English market was extended and 




^ 



JSSC^ 



The Savannah. 



British supremacy threatened. Nineteen years later Morse 
stretched a wire between Washington and Baltimore and 
sent a message over it; the half Century had just begun 
when Cyrus Field succeeded in uniting Europe and 
America by a similar method. The steamship and cable 
had made the world smaller. 

Sir Henry Bessemer announced in August, 1856, in 
a paper before the British Association the now famous 
process of making steel; it required three years of costly 
experiment to solve finally the problem. Soon after 
the Suez Canal was completed and a new and shorter 



A SURVEY 7 

route to India established, through which were to pass 
in endless succession the steam-vessels built of Bessemer 
steel. In England, America, and Germany railroads were 
building, hastened by the new process of steel-making. 
The completion of a Pacific road in 1869, again short- 
ened world distances. By these achievements America 
and other lands were enabled to bring their vast resources 
to ocean ports and finally to exchange them for foreign 
products. But before this was possible in the fullest sense 
of the word it was necessary for them to complete their 
internal organization. 

The political history of the century is suggestive 
of national movement. England had acquired India and 
established an orderly civil government there, France had 
a foothold in Asia, the United States was in possession 
of a part of her western territory, Germany remained 
within her national confines, while Russia scarcely knew 
of the great wealth of Siberia. In 1842, after the opium 
war, Hong-Kong passed into the hands of the English, 
and Chinese exclusiveness was broken down; two years 
later, largely under the influence of this war, a few Chi- 
nese ports were opened to trade. The second half of the 
century had just begun when Commodore Perry knocked 
at the doors of Japan, asking admission for American 
trade. The Orient thus rudely awakened from its slum- 
ber remained comparatively unnoticed until nearly the 
close of the century. The world must pass through an 
American Civil War, an Austrian-Prussian conflict, a 
Eranco-Prussian struggle, and the pseudo-adjustment of 
the Eastern question before it was ready to think about 
commercial relations in the Ear East. 

The war for the maintenance of the Union in the 
United States continued for five years, bringing with it 
numerous changes. Through the influences of this 
war new cotton-producing nations were brought into the 
circle of international competition and a slave people 



8 MODERN INDUSTRIALISM 

freed from bondage. In Germany, from 1866 to 1870, 
every centralizing influence was at work in the creation 
of the German Empire. The quarrel over Alsace and 
Lorraine resulted in the humiliation of France and the 
transfer of a billion dollars to the coffers of the Kaiser. 
Then followed a period of industrial growth, and by the 
close of the century, Germany stood forth, a giant ready 
for commercial competition. 

From the beginning of the century England had, with 
her iron and coal, a marked advantage over her com- 
petitors. During the last ten years, however, this as- 
cendency has been challenged by the rapid development 
of the United States and Germany on these lines. At 
the close of the century the United States with her Min- 
nesota ranges, Michigan and Alabama mines, produced 
13,838,634 tons of pig iron, Great Britain 9,454,204, 
Germany 8,029,305 and France 2,567,388. As the or- 
ganization of industry rests upon a foundation of iron and 
steel the nation that possesses these and can get her re- 
sources to the sea must inevitably stand first in the indus- 
trial order. 

The century has likewise been marked by extensive 
discoveries of gold, which have greatly influenced the 
industrial organization from time to time. The constant- 
ly widening commerce and production demanded enlarged 
facilities of exchange, which were met by increasing sup- 
plies of gold, and an active organization of banking con- 
cerns international in character. The great discoveries 
of gold in Australia and California resulted in an increase 
in the annual output from $13,000,000 in the decade from 
1831-1840 to $130,000,000 in the ten-year period from 
1851 to 1860. During the few years since 1892 the 
gold supply of the world has been increased by over one 
billion of dollars in value, and even this has been seem- 
ingly ineffective in relieving the pressure upon the money 
supply. Nevertheless the nation possessed of resources 



A SURVEY 9 

of gold has materially strengthened its position as a com- 
mercial land. Increased national production could not 
have taken place, even with the growth of the gold sup- 
ply, if it had not been for the vast savings and credits 
held in the banks of the world. It is estimated that the 
negotiable securities of the world are equal to the sum 
of $85,000,000,000, while in the postal banks of Europe 
and England and the savings banks of Erance, Great 
Britain, Germany and America are credits vast beyond 
imagination. These accumulated proceeds of a century's 
toil invested in machines and tools yield a return in manu- 
factured products which the national owners are striving 
to sell in neutral markets. 

In a hundred years the organization of industry has 
undergone a complete change. The small producer is 
superseded by the captain of industry, and the small com- 
pany has given way to the trust, sometimes so colossal 
as to stupefy the imagination and blur the outlook. The 
equipment of producing nations with economic tools has 
been pushed to the fullest extent in the last twenty years. 
These have been used systematically and purposefully, as is 
witnessed by the vast production of commodities at the 
present time. During the last fifty years numberless in- 
ventions have facilitated production; among these we may 
find more commonly reapers, mowers, seeders, steam- 
plows and other agricultural machinery; the Bessemer 
steel process, the T-rail, the cable, telegraph and tele- 
phone; photograph, electro-plating, printing-press; the 
steam-hammer, rapid-firing guns, India-rubber in its in- 
dustrial uses, and the steam-shovel and drill; sewing-ma- 
chines; electric lighting, electric motors, microphones, 
spectroscopes, polariscopes ; the compound steam-engine; 
new process of refining sugar; hydraulic levers; cranes; 
elevators; iron and steam-ships, cheap fuel, by-products, 
aniline dyes and the type-writer.* 

* Wells' Recent Economic Changes, p. 65. 



10 MODERN INDUSTRIALISM 

A hundred years ago business was limited in area, 
now it is world-wide; then orders were given in person or 
by stage-coach post, now they are sent by letter, tele- 
phone, telegraph, or cable. In the days of the eighteenth 
century, because of the lack of transportation and com- 
munication facilities, a scarcity of commodities was possi- 
ble in one region while an abundance existed in another. 
By the men who reached a market at the time of a scar- 
city, enormous profits were reaped, an impossibility 
to-day in that the cable and telegraph have let the world 
know the condition long before the scarcity is actual. As 
a consequence the character of trade has wholly changed, 
the basis of profits having become skill in management 
rather than mere difference in place. 

With machine production as their agent, civilized 
nations have made wonderful strides in their com- 
merce. In the course of sixty years, from 1840 to 
1900, England increased her commerce from $853,- 
000,000 to $3,965,000,000. Measured in percentages the 
growth was 350; during the same time her population 
grew one-half. In 1840 Germany, a nation of struggling 
and wrangling states, possessed a commerce estimated at 
$263,000,000; by the close of the century it had reached 
the enormous figure of $2,416,000,000, an increase of 
690 per cent. The same year saw France with the second 
largest commerce, amounting to $288,400,000. Some- 
what behind in the race in 1900, France enjoyed still 
a foreign trade of $1,566,000,000, a gain of 424 per cent. 
In 1840 dormant Eussia's commerce amounted to $124,- 
000,000; now, awakening and stirred by new economic 
forces, the Eussian commerce has reached $643,000,000. 
The United States has made the largest gains; in 1840 
her commerce was $223,200,000 in amount, whereas the 
year 1900 registered $2,243,000,000 of imports and 
exports. 

Great Britain was the pioneer in this machine pro- 



A SURVEY 11 

duction and in consequence possessed at first a monopoly. 
Knowledge of industry, of machines, and of commercial or- 
ganization could not always remain in the control of one 
people. The nations once followers are now rivals. In 
the strife for economic supremacy England reached her 
present position as a mercantile nation after three-quar- 
ters of a century of struggle and experiment. Unham- 
pered by the accumulated materials of rejected knowl- 
edge, greatly assisted by recent contributions to the 
theory of machine production, and profiting by the ex- 
perience of England, the younger industrial nations have 
advanced rapidly into new fields, until, as can be seen by 
the statistics of commerce, they threaten the supremacy of 
the pioneer country. 

The figures given in the preceding paragraphs are by 
no means indicative of the extent of machine production; 
for within the boundaries of each land are factories, foun- 
dries and forges engaged in the making of commodities 
for the home market. Only scattered and meager statis- 
tics can be secured in support of even this statement, but 
such as they are they furnish sufficient evidence of a 
wide-spread development of industry. France had, in 
1899, establishments numbering 88,968 engaged in manu- 
facturing, while her railroads carried freight amounting 
to 126,830,000 tons. Germany in 1898 produced $238,- 
000,000 worth of minerals and manufactured among other 
commodities $2,503,000,000 of iron products. Russia, 
agricultural nation as she is, had in 1897 30,029 estab- 
lishments which produced values of 2,839,144 rubles. 
Products to the value of $13,004,400,143 were reported 
as manufactured by 512,254 establishments. in the United 
States in 1900. The mineral wealth produced in 1898 
by the people of the United Kingdom was $377,000,000, 
and the textile industry created values to the amount of 
$859,000,000.* 

* The Statesman's Year Book, 1901. 



12 MODERN INDUSTRIALISM 






It is estimated that to-day the more important nations 
are putting forth mechanical power in the field of pro- 
duction equal to 320,116,000,000 foot-tons daily.* The 
same remarkable development may be noted in the 
very large increase of spindles in operation at the present 
time. In the year 1900, the various nations were oper- 
ating 101,790,000 spindles in the production of cotton 
goods. Some further conception of the vast growth that 
has taken place may be gained from the statistics of produc- 
tion of various commodities. The nations of the world 
manufactured in 1900, something over forty million 
tons of pig iron, and twenty-eight million tons of steel. 
Coal, an essential in the workings of the factory system, 
was mined to the extent of 724,000,000 tons in different 
countries ; 2,700,000,000 pounds of wool, nearly three 
times what it was in 1860, were produced in the last year 
of the century; while wheat to the amount of 2,800,000,- 
000 of bushels was grown and harvested in the year 
1900. These figures, meager as they are, indicate in no 
small degree the extent and power of the producing 
capacity of the manufacturing nations at the present 
time. 

The most notable thing in the rapid development of 
modern industrialism is the growth of the United States, 
where the methods of the new industrialism prevail more 
than in any other land. In the year 1898, the United 
States sold for the first time more domestic merchandise 
in foreign lands than any other nation; her balance of 
trade since then has been remarkable in the wide differ- 
ence between manufactured goods exported and imported. 
All the figures go to prove that the internal organization 
of the country has been completed and that the vast re- 
sources are now furnishing the materials for her manu- 
factured products. The corn, wheat, cattle, iron, and 
cotton that formerly went to foreign shores, are exported 
* Mulhall, North American Review, June, 1895. 



A SURVEY 13 

as flour, dressed beef, hams, steel tools and machinery 
and cotton fabrics. 

From three sources we may form a conception of the 
internal commerce of the United States. The railroads, 
in 1900, transported 510,079,200 tons of freight; through 
the canals at the Sault there passed in the same year, 
25,643,073 tons, while on the canals of New York were 
carried 3,354,941 tons. To these figures should be added 
the coastwise and river carriage of freight, for which 
there are no figures to be had. The census of 1900 shows 
that a capital of $9,187,434,799 had produced, from a 
raw material valued at something over seven billions, a 
product estimated as being $13,004,000,000. The wealth 
of the nation was estimated in 1900 as equal to $94,300,- 
000,000, owned by a population numbering 76,303,387. 
The freight carriage, manufactures and the total wealth 
of the nation convey some idea of the vastness of the 
industrial organism. 

As we turn to the modern facilities for the conduct 
of business, the tremendous strides during the past hun- 
dred years are apparent. The fourteen-ton Rocket of 
Stephenson's is a mere pigmy beside the giant locomotives 
of to-day. The steamer Savannah, earliest of her kind, 
could be easily carried in the hold of the Oceanic, and 
so the comparison may be continued into every department 
of business. 

Recently an English shipping company built a vessel 
of 20,000 tons gross, another one, within two years, placed 
in its sailing schedule a steamship of 17,274 gross tons, 
capable of carrying 7,000 tons of freight, while a some- 
what smaller vessel carries 8,651 tons, which, translated 
into freight-cars, means 215 cars of 40 tons each to give 
a full cargo. With the widening of the world's market, 
the national shipping has, in most instances, grown rap- 
idly. England, in 1900, possessed 14,372,000 tons, the 
United States 4,864,238 (including barges and canal- 



A SURVEY 15 

boats), Germany 2,720,000 and France 1,401,000.* 
Among the smaller nations, Japan and Norway are 
making the most progress. In addition to the shipping 
the world has been equipping itself with railroads to aid 
in the task of transportation; the latter carry raw mate- 
rials to the mills and transport the finished product to 
the waiting vessels on the seaboard. The year 1900 saw 
466,939 miles of railroad in the various countries of the 
globe, which carried, in 1897, over three billion passen- 
gers and one billion tons of freight. f The world has 
likewise equipped itself with a cable system of 166,290 
miles, over which were sent, in 1898, 312,000,000 mes- 
sages. As the struggle for commercial advantage in- 
creases in intensity, nations will increasingly endeavor to 
secure the best labor-saving machinery that genius can 
produce. 

It was less than three-quarters of a century ago that 
Howe struggled with the sewing-machine, which has now 
found its way into thousands of homes in many lands, 
and into factory after factory where a dynamo or engine 
drives a shaft to which the machines are attached. In the 
business of newspaper making, the Hoe presses print thou- 
sands of copies in an hour, thus facilitating the spread 
of information in every land. Germany and England 
now seek in the United States the lathes, steel-cutting 
machinery and agricultural implements for use at home 
or in their colonies. The principle noted in the com- 
petition of individuals with each other in the field of 
production is now to be seen in the conflict of nations. 
That principle may be reduced to this — the elimination 
of the unnecessary and the acceptance of any improve- 
ment likely to reduce cost. 

The movement from good to better methods of pro- 
duction has been accompanied, in fact accelerated, by or- 

* Journal of Political Economy, December, 1900. 
f World Almanac, 1901, p. 231. 



16 MODERN INDUSTRIALISM 

ganization. Organization that began in the factory has 
extended to the industry and in a certain sense to the 
business of a nation. The factory began in the time of 
competition, organization of a plant gave the owner an 
advantage over his competitor which lasted as long as it 
made possible the cheapest product. Little by little the 
methods of the individual have extended to the industry, 
and the machines, once the monopoly of one, have come 
to be the common property of all. So long as an industry 
supplied the home market, the national organization was 
not likely to be fully developed, but when a surplus of 
products resulted and a foreign market entered then a 
further organization was necessary. 

The increasing capital and savings, noted in another 
place, seeking investment in all lands, forced production 
for a territory beyond the national limits. This accu- 
mulation of capital, the increased production of machin- 
ery, better organization of the factory and greater division 
of labor have produced the great competition of nations 
with each other in the world's market. Such a competi- 
tion, severe and excessive in character, could not take 
place without a complete reorganization of industry. In 
centers where population and raw materials were at hand, 
factories of producing companies have been erected. The 
owners of them, in order to eliminate duplication and 
excessive cost of management, have constructed a minute 
organization which will make it possible to take advantage 
of every division of labor and of every facility of pro- 
duction. As the times and character of industry demand- 
ed, the partnership, joint-stock company, corporation and 
trust have appeared, in the order named, as the dominat- 
ing features of industrial organization. In the opinion 
of Lord Rosebery a trust organization of industry gives 
a nation a great advantage over other nations in the com- 
mercial contest. Certain it is that with proper organiza- 
tion the aggregation of capital, machinery and labor should 



A SURVEY 17 

give peculiar advantages in the field of production; but 
of these more will be said in a later chapter. 

Accompanying this movement toward concentration 
may be seen a growing dependency of trades upon one 
another. Specialized industries have come to be the 
order of the day, until entire factories are given over to 
the production of one kind and quality of goods. Thus 
the industries of the nations are more closely allied and 
grouped than in the past, these groups being materially 
affected by the location of the raw material and the facili- 
ties of transportation to the market. As the dominant nat- 
ural conditions in a country come to be better known, a 
wider distribution of production takes place, resulting in 
an expansion of competition and increased localization 
and specialization of industry. 

Viewing the situation as it exists to-day, nations ap- 
pear to exert every power and influence to secure the 
ascendency in the world's market. As was indicated, the 
nation once great as a manufacturer is now rivaled by 
others who have steadily but surely pushed her in the 
market. It may be only a matter of time until each 
nation in its turn reaches the highest point and then slow- 
ly and gradually gives way to another. Certainly, indus- 
try as now organized points to just such a succession, but 
as the principle of specialization and location is fully 
understood and acted upon, there may be a mutual devel- 
opment in different ways and along different lines. The 
trade a nation will then carry on will depend upon the 
peculiar qualities and advantages she possesses over other 
lands. 

It will take, however, a long time for nations to real- 
ize that each one may have a specialized industry best 
suited to its resources. Until this time comes we must 
look for continued political and industrial strife in the 
attempts made to secure control of the world's market. 
This form of market represents the fullest expansion due 
3 



A SURVEY 19 

to modern machinery of transport and exchange, the rail- 
way, steamship, newspaper, telegraph, and the system of 
credit built up and maintained by the assistance of these 
material agents. The world's market, therefore, must be 
for non-perishable commodities, such as steel rails, cloth, 
wheat, cereal foods and machinery. The larger this mar- 
ket becomes the greater the economy of factory labor, 
and the larger the demand for increased investments of 
capital. On the other hand, it is virtually impossible to 
realize the economies in wider production unless a large 
market is opened to the producer. As machines have 
developed- and factories grown the unit cost of manu- 
facturing has been lowered, enlarging the extent of the 
market with each improvement in production. But with 
the widening extent of the world's market has gone the 
supposition that it can be controlled by ownership of terri- 
tory, which has diverted public attention to foreign ques- 
tions of diplomacy. As a matter of fact, although mod- 
ern industrialism has brought foreign problems promi- 
nently into the field of discussion, there are, nevertheless, 
far more serious domestic questions to be settled which 
will, in the end, determine the question as to whether 
a nation can remain a competitor in the world's market. 



CHAPTER II 

INDUSTRIAL CHANGES IN ENGLAND SINCE 1760 

It was the industrial revolution of the last part of 
the eighteenth century that changed the " Merrie Eng- 
land " of the Georges to the factory land of Victoria. 
The tools of the handicraftsman, long the evidence of 
individual production, were displaced by the machine sys- 
tem of the capitalist during this period of change. The 
England of hand-production was to become the land of 
machines ; from isolated and loose industrial organization 
she was to pass to a highly organized, compact industrial 
nation. 

The contrast between the old and the new England 
is so great that a brief statement of the conditions exist- 
ing before the revolution will bring the transition more 
clearly to view. In the England of the eighteenth cen- 
tury industry presented the same general features as in 
the Middle Ages. Primitive and unsystematic methods 
of agriculture prevailed, men complained that one-Half 
the land was waste and quarrels arose continually over 
the rights of the people on the common land. There 
was no rotation of crops, the agriculture was exceedingly 
unscientific and unproductive for the amount of work put 
upon it. Arthur Young, in commenting upon the agri- 
culture of the time, says, " the spring crops are beneath 
contempt. Much time is lost in travel to the different 
strips and there are perpetual quarrels over the rights 
to pasture." But in 1770, the same writer says, " in the 

20 



CHANGES IN ENGLAND SINCE 1760 21 

last ten years there have been more improvements and 
good sense displayed in the walk of agriculture than in 
one hundred preceding years." 

The population in 1769 was estimated at eight and 
one-half million people; 60 per cent of those were en- 
gaged in agriculture and manufacturing. Employment 
was as a general thing regular, nominal wages were low 
but their purchasing power fairly good. In the manu- 
facturing field the woolen industry was the principal one, 
a fact probably due to the great advantage England had 
as a wool-raising country. Even as late as 1770 the ex- 
ports of woolen goods amounted to about one-third the 
entire exports of the nation. In annual value the woolen 
manufacture of the kingdom was estimated at £600,000. 
Of this about one-third was exported in the year 1764. 

Next to the woolen industry in importance was the 
production of iron. In 1737 there were fifty-nine fur- 
naces in eighteen different counties producing 17,350 
tons of iron annually. This did not suffice to meet 
the demands of the English manufacturers, for some 
20,000 tons were imported from abroad. The cotton in- 
dustry was very insignificant, although in 1760 there were 
forty thousand people engaged in it. In the hardware 
trade it is said that fifty thousand people were employed 
in 1727, although the business was confined largely to Bir- 
mingham and Sheffield. Here and there, in the different 
parts of the country, where trade centers in the manufac- 
tury of hosiery. Several silk mills existed at the time, 
and some linen was manufactured at various places in 
the country. Banking was in its infancy and little used 
in the development of trade. 

The external commerce of the nation though not 
large was growing rapidly. In 1792 the exports amount- 
ed to £24,905,200 and the imports in the same year 
reached the sum of £19,659,358. 

Despite this seemingly impressive array of industries 



22 MODERN INDUSTRIALISM 

the mechanical arts were in a decidedly backward state. 
The inventions of the industrial revolution had not yet 
been made a part of the industrial system. Such fac- 
tories as existed were driven by water power, while the 
principal method of manufacture was carried on by a 
modified system of the cottage industry. Even as late 
as 1750 in the well-organized woolen trade the cottage 
system was used. It is said in the Nottingham hosiery 
trade there were fifty manufacturers known as " putters 
out " who employed twelve hundred frames. In the nail 
business the same method was followed. The iron mer- 
chants gave out rod iron which was made into nails in 
the cottages of the people. The tendency was in the di- 
rection of bringing the looms into the town, though at 
this time few looms were found under the same roof. 
This, however, was the nearest approach to a factory 
system before the introduction of the inventions. 

The markets of the time were limited by poor com- 
munication and lack of transportation facilities. The in- 
dustries were largely local and there was no competition 
to force them into better methods, so that the division 
of labor was about the same as one hundred years before. 
Scattered through the country were small master manu- 
facturers, who, having land and capital of their own, com- 
bined farming with manufacturing. Unprogressive as the 
times were in the business of production, wealth was more 
equally distributed and the relation between workingman 
and employer much closer than under the factory system. 
In the houses of the master mechanics, artisan, appren- 
tice and master ate at the same table, while on the farms 
the laborer and the farmer were on an equal footing. 
The landlords of the day were only moderately wealthy, 
and the society may be regarded as unprogressive, tena- 
cious of old customs and satisfied with its means and 
methods of production. 

Three groups of causes may, on Toynbee's authority, be 



CHANGES IN ENGLAND SINCE 17G0 23 

designated as the reasons for the movement that took 
place during the period called the " industrial revolution." 
The first of these was agrarian, the second manufactur- 
ing, and the third general. The agriculture of England 
was inferior to that of the leading European states, and 
but little real progress had been made in the cultivation 
of the soil; beginning, however, with 1760 and continu- 
ing until the first quarter of the nineteenth century a 
marked improvement was seen in this direction. 

(1) The changes consisted chiefly in the acceptance of 
the new agriculture as it was practised in Holland, and 
this somewhat slow recognition of better methods was 
accompanied by the destruction of the common-field sys- 
tem of cultivation and the substitution for it of rotation 
of crops and a three-field system. The enclosure of the 
common land formerly allowed to lie waste was a third 
element, while a fourth one is found in the consolidation 
of small farms and the introduction of capital into the 
business of agriculture. 

The causes for the lack of progress in English agri- 
culture may be summarized in the following: waste land, 
open field farming, the absence of stock leases, the ig- 
norance of the farmers, the acceptance of traditional 
practices, the lack of markets, and the difficulties of com- 
munication. With the development of markets produced 
under the influence of the manufacturing part of the 
revolution, agriculture received a stimulus that forced 
it into new methods and better means of cultivation. 

(2) The course of the revolution in the field of manu- 
facture is seen in the development of inventions, in the 
use of coal and iron, the establishment of factories, the 
accumulation of capital, and the organization of capital 
and labor. Eour periods are noticed in the growth of 
mechanical devices.* The first, lasting from 1730 to 1770, 

* The author is indebted to Hobson's Evolution of Modern Capitalism 
for this classification. 



24 MODERN INDUSTRIALISM 

may be called an experimental period. In this period 
we have Wyatt's woolen spinner, Kay's flying shuttle, 
Paul's carding machine, Hargreave's spinning jenny, and 
Arkwright's improved spinning frame. 

The second period extends from 1770 to 1792, and 
is one in which the mechanical inventions are more thor- 
oughly developed. It includes the machines most neces- 
sary for the growth of the cotton industry, such as Cromp- 
ton's spinning mule, then patents for carding and draw- 
ing wool and cotton, and ten years later Cartwright's 
power loom. There still was wanting something powerful 
enough to drive the machinery that had thus far been 
produced, and so long as people were compelled to rely 
upon the water-wheel for driving force industry was lim- 
ited to factories far removed from the market and not 
particularly well qualified for the production of cotton 
and woolen goods. 

From 1792 to 1830 we have the third period, in which 
is seen the application of steam power to the mechanical 
devices of the second period, and at the same time the 
invention of three machines, necessary to the fullest 
growth of the weaving industry. Whitney's cotton gin 
appeared in 1794 and revolutionized the harvesting of 
cotton, making it easy to supply the hitherto insatiable 
demand. Herrick's dressing-machine was developed in 
1813 and in 1830 the throstle, an improvement upon 
Arkwright's water-frame, made a smooth yarn and a 
thread strong enough for the warp of heavy goods. 

In the fourth period, extending from 1830 on to the 
present, the dominating features are in the invention 
of the locomotive, and the application of steam to marine 
transportation; in this period, too, many improvements 
were made in the earlier machines. 

In reviewing these several periods the sequence in the 
development is apparent. The first period was character- 



26 MODERN INDUSTRIALISM 

ized by improvements in the means and methods of spin- 
ning and weaving. In the second period it was necessary 
to apply the mechanical devices so as to secure some other 
motive power than that of man. So long as water-power 
alone was relied upon the factory system could not be 
generally developed. It remained, therefore, for the 
steam-engine, which was brought forth in the third 
period, to stimulate the growth of the factory system 
beyond the conception of its founders. The application 
of steam-power to mechanical devices for production of 
goods extended the market, necessitating better means of 
transportation, which were provided in the fourth period 
through the invention of the locomotive and the applica- 
tion of steam to marine transportation. 

In addition to inventions^ iron and coal were neces- 
sary before the manufacturing part of the revolution 
could be brought to its conclusion. The iron was wanted 
to produce machines, the coal to drive them, and without 
these England could not, particularly in the Napoleonic 
wars, have secured the advantages which she did in this 
revolution. England, however, had both coal and ore, 
and with these as a basis she was able to manufacture 
iron, steel, and machines. 

(3) But England, with her unorganized means of 
transportation, was in a position where she could not have 
taken advantage of her facilities without some change in her 
transportation system. Under the heavy traffic of the 
new manufacture the roads which had sufficed during the 
Middle Ages broke down and failed to provide easy means 
of transporting goods. This condition resulted in the use 
of the pack-horse until the canal relieved the pressure 
upon the traffic. From 1770 on for thirty years canals 
were industriously extended throughout the manufacturing 
parts of England. The use of coal as a fuel for making 
steam was now possible and the factories situated on 
streams in remote parts of the country were brought 



CHANGES IN ENGLAND SINCE 1700 27 

through the distribution of coal and goods to the centers 
of population where a working force could be had. 

The complete change in the organization of English 
society from land to persons two centuries before tended 
to hasten the revolution. Until the great class struggle 
of the sixteenth century men were landed men, connected 
with the soil as lord, vassal or serf. The guild and feudal 
systems were broken up, leaving men without a status, a 
thing highly essential in medieval society. The laborer 
too was left without his feudal lord, and there was, as a 
result, much drifting from place to place. The continu- 
al movement from country to city and from city to 
country tended to break up the old domestic system of 
industry. As a result of the movements of this period 
men were without land connections unless in the capac- 
ity of landlords or tenants, and, as a consequence, Eng- 
land was confronted with a problem — the care of persons 
seeking a place in the organization and unable to find 
one. To alleviate the consequent suffering and depriva- 
tion in part due to the changes wrought in her social 
organization prior to the revolution mentioned above, she 
entered upon a more extended system of poor relief. 

The strict enforcement of the poor laws, prior to the 
middle of the eighteenth century, brought a reaction, 
which from 1750 to 1834 resulted in a laxness of admin- 
istration that created many evils. During the period just 
mentioned, the system cut at the roots of independence 
and self-help, fostered suspicion, heartlessness and vice, 
paralyzed industry and lowered the moral and material 
standard of living in the country.* It hastened, it may 
well be believed, by the rapid decline of the domestic 
method of production, the coming of the factory system, 
which, when established, was maintained by a child-ap- 
prentice system and the laborers without place. Many 

* Article, Administration of Poor Law, Palgrave, Dictionary of Political 
Economy. 



28 MODERN INDUSTRIALISM 

attempts were made to prevent the movement of the 
poor from parish to parish, which was a block in the 
way of the economic progress of the working class, upon 
whom England was depending for the manning of her 
factories. 

Another influence may be mentioned among the gen- 
eral causes of the revolution — an influence due to the 
loss of the American colonies and the general conclusion 
that a sale-market does not necessarily demand ownership 
of it. This thought, when fully recognized by the Eng- 
lish, caused them to throw aside their mercantile notions 
and stimulated their foreign trade with all parts of the 
world. They were to be the great producing nation, the 
one that should enter the marts of the world and through 
their factory system supply the products needed by the 
people of many nations. This conception, once fully rec- 
ognized, had much to do with the rapid commercial ad- 
vance of England. 

The industrial revolution, though covering a period of 
but forty years, nevertheless produced many lasting 
changes. The system of industry was overturned and general 
social conditions greatly altered. Labor had become less 
necessary than capital, factory towns had displaced villages 
and small industrial centers and the social classes were 
more numerous and less in touch than before the revolu- 
tion. Farmer and laborer, and capitalist and laborer, had 
become separated by social barriers. There were great 
fluctuations in employment, supplies and prices. The 
product of the country was larger and of much better 
quality and men were on the whole more regularly em- 
ployed, but wages fluctuated greatly in purchasing power. 

During the period from 1776 to 1815 the population 
of the country had grown very rapidly. The factory 
system drew many people to the manufacturing centers. 
These had become great cities, and under the political sys- 
tem then prevailing had no representative in Parliament 



CHANGES IN ENGLAND SINCE 1760 29 

This condition, strange and unacceptable, continued to 
exist until the granting of the franchise and the breaking 
down of the rotten borough system. It was a necessary 
process in the development of a democratic England. 

Not the least among the changes that had taken place 
during the revolution was the transformation in the realm 
of ideas. Up to the last quarter of a century men had 
talked much of government regulation, but new concep- 
tions of liberty had been presented by various schools of 
philosophy that cast aside the old notion and put in its 
place the theory that governments should control as little 
as possible. Thus the individual w T as left to take care of 
himself w T hen he entered any industrial field where he 
might care to work ; but he was expected to rely upon him- 
self for his success and in case of failure bear his own 
losses. This was called " industrial liberty." 

The complete system of economic law, worked out by 
Adam Smith, Ricardo and others was accepted as furnish- 
ing a sufficient regulation of things economic. Enlight- 
ened self-interest was the keystone to the industrial arch. 
Undoubtedly the factory system made rapid progress be- 
cause of the absence of government interference. Men 
were at liberty to employ any kind of labor, of any age, 
and this was done as the dreadful story of English labor 
testifies. Under these conditions the profits of the factory- 
owners grew apace. England was prospering, but the 
condition of the mass of people was worse instead of bet- 
ter; and she was yet to learn that a government can shield 
the weaker ones of society during a transition period, and 
that it is often necessary for the state to curb and direct 
the growth of institutions likely to affect its own exist- 
ence. 

The industrial revolution, with its vast changes, made 
it possible for England to bear the burden of the Napo- 
leonic wars. Grief-stricken and beggared Europe was 
compelled to come to the Englishman for supplies, but 



30 MODEEN INDUSTRIALISM 

peace brought its punishments. In 1790 the population 
was eight millions; at the close of the wars there were 
fifteen millions of people in Great Britain. High prices 
prevailed, great discontent followed and misery ruled. 
England had not yet adapted herself to the new methods 
of production, her new organization was incomplete, her 
old one with its yeomanry was gone. Peace had cut down 
her foreign trade and left her factories idle. 

The British farming system at the opening of the 
century included landlords, tenants and laborers, for the 
former copy-holders and cottagers were reduced to wage- 
earners by the process of farm consolidation. By 1817 
some forty thousand farms had been united with larger 
ones; naturally the displacement of so many cottagers, 
commoners and open-field cultivators accentuated the cri- 
sis, and for twenty years after the Napoleonic wars an 
agricultural depression prevailed. Nevertheless it re- 
mained for the capitalistic landlords to make possible the 
recovery of agriculture from its prolonged misery during 
the years 1818-36. When the later date was reached the 
old system of cultivation had disappeared. 

During the thirty years after the battle of Waterloo 
England made progress slowly; her population rose 
to twenty-four millions, her national wealth increased, 
the burden of taxation lessened, but her factory system 
was still unorganized and its evils at their very worst. 
Labor, encouraged by the repeal of the Settlement and 
Wages Acts, the modification of the corn laws and the 
elimination of the conspiracy laws from the statute books, 
formed local trade-unions which in the latter part of 
the period took on the organization of national unions. 
It was a time of readjustment, an effort to make the old 
fit the new, and where this was not possible the old was 
destroyed by the new. Time was required to make these 
changes and progress was slow but sure. England did not 
have the advantage of an established educational system 



CHANGES IN ENGLAND SINCE 1760 31 

to help her in the transition and the light of the future 
industrial organization came but slowly. 

By 1836 scientific methods, intensive cultivation and 
improved drainage had revived agriculture, and as a re- 
sult continuous prosperity was enjoyed until 1876, when 
the competition of new and fertile soils in foreign lands 
disturbed the prosperity of the English farmer. The in- 
terests of England demanded, from the manufacturers' 
point of view, a cheaper and more regular food-supply, 
in support of which movement the Anti-Corn League was 
formed in 1838. The change was fought by the agri- 
culturist to the bitter end, the battle between the landed 
and manufacturing interests continuing until the final re- 
peal of the corn laws. Peel's bill of 1842 was a great 
step toward the end as well as toward free trade, the 
policy of Great Britain. Famine in Ireland finished the 
argument and the landed interests were left without the 
protection of the corn laws. The stimulus of the corn 
laws to agriculture, now lost through their repeal, was 
more than made up by the tremendous development of 
trade and population, and the expansion of commerce ow- 
ing to the introduction of steam for transit and motive 
power, while improved machinery, fertilizers, and econo- 
mies in farming made agriculture more profitable. 

By 1846 England had her modern industrial organ- 
ization fairly well in hand; the laboring classes were 
greatly superior to the proletariat of the first part of the 
century; a higher standard of living prevailed among 
them; machinery was accepted as a necessary part of pro- 
duction and the opposition to its use had almost passed 
away. The banking and currency system also was com- 
pletely changed and for the better by the Bank Act of 
1844. The old policies of national trade had been aban- 
doned for the wider one of freedom. During this time, 
too, a great many legislative reforms had been introduced, 
such as the Reform Bill, the factory acts, the modification 



32 



MODERN INDUSTRIALISM 



of the corn laws and the change in the Poor Laws, in 
1834. This legislation materially affected for the better 
the English workman, giving him shorter hours and bet- 




Longitude 4 W 



ter sanitary conditions in the factory. But despite this 
favorable legislation little material progress was made, 
and wages showed but a slight upward tendency, though 
pauperism had materially diminished. 



CHANGES IN ENGLAND SINCE 1760 33 

This continuous improvement in the details of machine 
construction, in the skill of workers and in factory organ- 
ization, in automatic machinery and in speed, resulted 
in a finer class of goods and a marked increase in the 
foreign trade of the nation. In the first part of the 
century the hand-looms gave way slowly to the machines 
driven by steam. The gradual introduction of the power- 
loom is seen in the figures of 1815 when there were 3,000 
power-looms, 1820 when there were 12,000 and in 1834 
when the number had reached 100,000, although even then 
there were 250,000 hand-looms at work in the kingdom. 
(The power-loom was capable of producing six to eight 
times the product of a hand-machine.) It is more than 
a coincidence that these same figures represent the pro- 
portionate increase of the foreign trade of England in 
the thirty-six years between 1815 and 1851. 

England's supremacy has rested in no small degree 
upon her early development of the iron industries, which 
made it possible to get her industrial' organization well 
in hand before other nations had entered upon the crea- 
tion of railroads and iron vessels. At the beginning of 
the century she had better command of her mineral re- 
sources than any other land, for in 1806 there were 161 
furnaces, producing 243,800 tons of pig iron, which in 
1852 had increased to 655 furnaces, producing 2,700,000 
tons of pig iron. This development of the iron industry 
stimulated ship-building and the construction of railroads. 
But more than this, freedom of trade had thrown wide 
open the gates of commerce and given England a great 
opportunity. In the two and a half decades from 1840 
to 1865 England made rapid progress although inter- 
rupted in her forward movement by Chartism, the Cri- 
mean War, the crisis of 1854, and the Civil War in the 
United States. Nevertheless the good harvests of 1842- 
43 were followed by large railroad undertakings, while 



34 MODERN INDUSTRIALISM 

the discovery of gold in Australia and California tended 
to offset these depressing influences. 

In the field of legislation the nation was actively en- 
gaged in eliminating the old usages and restrictions. Par- 
liament passed the Companies Incorporation Act in 1862 
and in the same year gave to the friendly societies the 
right to an independent legal existence. In the field of 
trade-unionism the organizations formed in 1851 the 
Amalgamated Union, the progress of which was materially 
aided by the greater leisure brought to the laboring class- 
es by the growth in national wealth. It was not in fact 
until the forties that the laborers began to reap the fruits 
of the legislation of 1833-34. They had in the mean- 
time made the important discovery that they could do 
a great deal by their own efforts, a fact that goes a long 
way toward explaining the progress of the trade-union 
in the later decades of the century. 

The necessity of railroads in England was never so 
marked as in America or even in Europe, for many rivers 
extending from the interior to the sea afforded excellent 
opportunity for the transportation of her commodities; 
nevertheless, owing to the early development of the iron 
and steel industries she was a pioneer in railroad construc- 
tion. Road locomotives, clumsy and unsatisfactory ma- 
chines, had been invented as early as 1769, while in 1801 
a horse-power road was constructed, called the Surrey 
Iron Railroad. The freight traffic of the country had 
increased so rapidly under the factory system that the 
canals, no longer able to handle the business, put the 
rates up to an unreasonable point. This stimulated a few 
capitalists to the point of building the Liverpool and Man- 
chester Railroad. In the year previous occurred the fa- 
mous trial of the Rocket, Novelty and Sanspareil at Run- 
hill. The Stephenson engine maintained a speed of twenty- 
nine miles an hour, which was regarded as a marked 
triumph. The future possibilities of the locomotive thus 



CHANGES IN ENGLAND SINCE 1760 35 

demonstrated as a motive power, the demand for capital 
for railroad building was greatly increased. 

But little notion of the relations of the railroads of 
a country to each other or of the part they were to play in 
the industrial organization existed in England during the 
early days of railroad construction. There was no idea 
of a connected system of railroads, and such confusion 
arose from the many gauges employed in the building that 




The "Rocket." 

Parliament was compelled to establish a standard gauge. 
Though at first there was much opposition in Parliament 
to railroads, as the years approached the middle of the 
century the opposition took a milder form and Parliament 
passed a series of constructive laws such as the Railway 
Regulation Act (1840), in which the safety of the public 
was carefully provided for, the General Corporation Act, 
the Cheap Trains Act (1844), and the Railway Clauses 
Act (1845). The commission appointed under the third 
of these acts provided a bill which made possible the owner- 



36 MODERN INDUSTRIALISM 

ship of the railroads after a period of twenty-one years. 
At the end of the time, 1865, the Royal Commission ap- 
pointed to consider the whole question of government 
ownership reported adversely to the plan, but favored cheap 
fares, which are now in vogue in England. 

In 1843, the last Southampton stage-coach ended its 
journeys and the railroad was victor over coach and canal. 
Still, railroad building was interrupted again and again. 
The panic of 1837 held men back 'from such a new ven- 
ture as railroads. The wild speculation of 1845 brought 
on almost immediately a reaction of such violence that 
railroad building proceded for the next ten years in a 
quiet and orderly manner. The problems of construction 
were solved to such a degree that the interest was shifted 
from them to questions of operation. 

There was, however, dissatisfaction with the regulation 
of railroads and much complaint was made by shippers. 
The last general act of Parliament on railway matters is 
the act of 1873 by which three persons were to be appointed 
to deal with railroad disputes ; one to be a lawyer, a second 
a railroad man, and a third a business man. This com- 
mission had final decision in matters of fact, questions of 
law could be appealed .to the courts. Parliament, expect- 
ing to solve the difficulties as they came up, never made 
the commission permanent, but renewed it from year 
to year. The expedient has been but partially satisfac- 
tory; the railroads, however, have continued subordinated 
in every respect to Parliament enactment. Satisfied that 
general legislation can no longer reach the difficulties 
constantly arising Parliament. has been content since 1873 
to legislate specifically for special problems. 

The opening of the Suez Canal drove from the ocean 
the fast clipper-built vessels which had given to England 
her long-acknowledged command of the seas. As early 
as 1838 a steaming record of fifteen days had been made 
between England and New York. Well equipped with 



CHANGES IN ENGLAND SINCE 1760 37 

.ship-yards and iron industries the English entered at once 
into steam navigation, and about the year 1840 were 
founded the well-known companies of the Cunard, P. and 
O., Royal Mail and the Inman. These were followed 
later by many others, giving to England at once an out- 
let for her commodities and direct communication with 
foreign nations. 

The year 1870 saw England with a thoroughly 
equipped and well-knit industrial organization. The 
interior parts of the island were connected by rail and 
canal with her seaports, and she was in fact getting her 
resources down to the sea and transporting them in manu- 
factured form to foreign lands in her own shipping. To 
her then came freight, ocean insurance, and profits with- 
out the competition of foreign carriers. Her resources 
were well developed and mining methods fairly under- 
stood. In the business of production the factory system 
had completely superseded the older methods of the days 
prior to the industrial revolution. Improved machines 
and buildings, united in an organized system superior at 
the time and for many years after to that of other 
nations, were creating vast amounts of commodities for 
exchange with other lands. The English likewise had set- 
tled for themselves by the year 1870 the financial ques- 
tions involved in banking and money; to them the Bank 
of England stood for solidity, while their money system 
based upon gold monometalism was regarded as the best 
possible for a commercial nation engaged in foreign trade. 
And well has their faith been founded, for merchants in 
foreign lands, knowing that bills of exchange on English 
firms were valued at so much the world over, have made 
London their banker. 

It was necessary, however, that such faith in English 
money should be accompanied by other deeds of trade 
freedom. In June, 1823, the old navigation laws, long 
restrictive of trade, were practically repealed. The ship- 



38 MODERN INDUSTRIALISM 

owners declared that they would be ruined, but in twenty, 
years the tonnage of English shipping had increased forty 
per cent — another evidence of the wisdom of casting 
away the old. 

Early in her history the sons of England in vessels 
on distant seas sought the shores of other lands. Driven 
from home, some by religious intolerance, some by eco- 
nomic conditions, some animated by the spirit of adven- 
ture, they built up in these lands miniature Englands, loyal 
to the old. Thus was begun England's colonial system. 
Until a century ago the mother country regarded the colo- 
nies as absolute possessions with no rights of their own, 
but the same colonies which once were looked upon as 
dependencies are now grown states, already possessed of 
much political importance. To England colonies are nec- 
essary, for she does not produce food enough for more 
than half her numbers; this surplus of population will 
strengthen English power abroad if it can be induced to 
go to the sources of the food supply. This source in the 
past has been America, but the English colonies through- 
out the world are entering more and more the home mar- 
ket and providing the mother country with food stuffs. 

England's colonial empire forms a great organization, 
touching with its network half the world and giving Brit- 
ish capital and commerce unusual opportunities for in- 
vestment under the guardianship of her army and navy.* 
The system is constructed on the main highways of com- 
merce and in consequence grows with world development, 
but after all the vital essence of this great colonial organ- 
ization lies in common descent, speech, traditions, common 
citizenship and social and commercial interests. 

Side by side with the development of freedom in the 
English colonies has grown the spirit of democracy at 
home. In 1832 partial franchise was granted to the Eng- 
lish workman, and from time to time this privilege has 
Cotton and Payne, Colonies and Dependencies, p. 132. 



CHANGES IN ENGLAND SINCE 1760 39 

been extended, giving him larger and more important 
interests in national legislation. As first established this 
bill gave the middle class a great deal of power which 
they were using to advance their own interests. So long 
as the so-called lower class had vague notions and radical 
ideas it was feared that it would be unwise to entrust 
them with the franchise. The grievances of the poor at 
the time were great and England was not ready to democ- 
ratize her institutions in order to relieve the conditions. 
The futile mutterings of Chartism had passed and Eng- 
land settled into a fairly contented state of mind. A 
second Reform Bill was passed in 1867 and a third in 
1884-'85, granting an almost universal suffrage to the 
workers of Great Britain. By these changes Parliament 
came to be the representative of the population instead of 
the aristocracy. With the political ascent of the workers 
the former ruling class lost much of its power, with the 
result that England is governed by the people and in a 
large measure for the people. Developing but gradually, 
this change did not bring with it the immense problems 
found in America, where the power of the democracy has 
at times attempted to regulate economic development in the 
interest of the democracy. 

After struggling for three-quarters of a century the 
trade-unions in 1875 secured the passage of a law that de- 
fined their rights and powers and gave such organizations 
an established position. With the franchise and their 
newly acquired rights the trade-unions have made rapid 
progress in numbers, wealth and influence. As factors 
in production they bring a mighty power to bear on the 
determination of any question. Nevertheless, in the face 
of such growth schemes of profit-sharing and cooperation 
have been presented in the hope of modifying industrial 
conditions. The trade-unions are regarded more and 
more by employers as a necessary part of the industrial 
organization. The development of the franchise and the 



40 MODERN INDUSTRIALISM 

growth of the trade-union and industrial organizations 
have been accompanied by an increased government activ- 
ity. The post-office was early in government control and 
with it there has been connected from time to time the 
telegraph, telephone, parcels post and savings bank. In 
England the tendency seems to be toward the regulation 
and ownership of some of the great branches of industry, 
quite in contrast, so far as results go, with the course of 
events in America. 

It has been only within the last few years that the 
English have attempted to form combinations, after the 
example of many industries in the United States. There 
were in earlier days many local combinations to keep up 
prices, but no active movement toward the concentration 
of industry until recent years. The form adopted by 
these new trade organizations is quite like that now exist- 
ing in the United States. The English people have by no 
means the same fear of these organizations as exists in 
America, but hail them as the means of meeting foreign 
competition and maintaining English commercial power. 

The opening of the twentieth century finds England 
with a completed industrial organization. Eor many gen- 
erations she has been getting her resources to the sea ; 
she has a merchant fleet of 14,372,900 tons and a foreign 
commerce of nearly four billions of dollars. She has cast 
aside the corn laws of the first part of the century, 
amended her navigation acts, organized a factory system, 
developed her labor organizations, created a trust system 
well under the control of the government, granted the fran- 
chise to her workers, and with it all is comparatively free 
from the harassing problems found in America, due to 
the too rapid development of both plutocracy and in- 
dustry. 

Nevertheless after fifty years of free trade she turns, 
incited by the marvelous progress of her rivals, to the con- 
sideration of a protective system. Confronted by a food 



CHANGES IN ENGLAND SINCE 1760 41 

problem and what seems to be a- stationary trade she looks 
to a closely knit empire for a remedy. As in earlier days 
she is in a period whose results threaten her policy, fiscal 
and imperial. No longer mistress, she fears the loss of 
her share of trade. In the progress of the century her 
organization may have suffered by its very successes. 



CHAPTEE III 

INDUSTRIAL EVOLUTION OF AMERICA 

England entered the industrial revolution with well- 
developed political and social institutions; the people of 
America began their industrial evolution with a newly 
formed constitution, with a national debt, and with 
small conception of the vast changes that were to take 
place in their country. The revolution in England ex- 
tends from the year 1776 to 1815; in America it is a 
period of successive waves of human life in which the 
savage is superseded by the hunter, the hunter by the 
trader, the trader by the rancher, the rancher by the 
farmer and the latter by the manufacturer with his ac- 
companying organization of city and factory system. In 
time the period extends a hundred years after the adop- 
tion of the constitution; the movement has been at times 
quick, at others slow, in the development of trade, com- 
merce, transportation and manufacture. 

Cultivated farms, towns and cities were the posses- 
sions of England when the great industrial changes be- 
gan; in America the people were compelled to conquer 
forests, to make roads and bridges, and to subdue nature. 
The story of English growth is the story of an organized 
society gradually casting aside the old and accepting the 
new, while the history of America is the story of free 
land, its settlement, and the advancement toward the west 
of American civilization — a story, indeed, of reversion 
to primitive conditions on a continually advancing fron- 

42 



INDUSTRIAL EVOLUTION OF AMERICA 43 

tier line, where the social development of the last settle- 
ment was restarted and replanted. The Americans were 
an expanding people demanding in some cases new insti- 
tutions and in others the alteration of those brought to 
American shores by the English. Thus social develop- 
ment was continually beginning over again on the fron- 
tier ; it was productive of excessive individualism, creating 
as a result a " free land democracy," intolerant of re- 
straint and lax of government, and leading in the long 
run to difficult problems which have been obliterated or 
entirely avoided in countries where democracy was an 
evolution instead of an expansion.* 

In America the movement was largely that of evolu- 
tion of industry and in consequence plenty of time was 
given the laborer to adjust himself to the new conditions. 
There was no landed aristocracy in the United States. 
Land was free to every man, who could undertake its 
cultivation if he wished, and employ such capital and 
labor as he possessed. Every farmer was his own land- 
lord and his own laborer. All classes were merged into 
one great class, a condition due to the fact that no one 
would be a laborer and work for wages if he could get 
land of his own to cultivate. In consequence there was 
a social uniformity and equality prevailing in America in 
strong contrast to that existing in England. As the la- 
borer had the option of working with his own tools he 
was always able to secure the results of his labor. He 
occupied then the position of capitalist, manufacturer and 
manager, f 

The second census found 5,308,418 people residing in 
what was called the United States of America. During 

* Professor Turner, in his Significance of the Frontier in American 
History, has pointed out more clearly than anyone else the evolution of the 
frontier in the United States, and to him the author is indebted for many 
valuable suggestions and ideas. 

f This statement holds true in the face of indentured servants and con. 
tract labor. 



44 MODERN INDUSTRIALISM 

that same year England had a population of 15,000,000* 
and France 27,000,000. In America one-fifth of the popu- 
lation was negroes, leaving less than 1,000,000 able-bodied 
males in the great struggle for the conquest of nature. 
Forests covered every portion of the country, while two- 
thirds of the people resided within fifty miles of the 
seaboard and a vast mountain-range separated the eastern 
and western settlements, f Communication between the 
cities and towns was exceedingly slow, requiring many 
weeks to pass by land and a long time to go by sea from 
port to port. 

Up to the time of the Revolutionary War the people 
of the United States supplied themselves almost entirely 
by what is known as the domestic system of manufacture. 
Spinning, weaving, production of boots and shoes and 
of food products were carried on inside of the home. 
Here and there, it is true, there were small factories en- 
gaged in the manufacture of cloth, or the making of some 
iron ware, but the capital of the country was largely 
absorbed in shipping and agriculture. The products of 
the fishing industry found ready and rapid sale in the 
Catholic countries across the sea. Lumber was taken 
from the vast forests along the coasts and sent abroad in 
considerable amounts. The whole valuation of the prop- 
erty of the United States in the year 1800 was placed 
at $1,800,000,000, or $418 to each free white. The 
wages averaged about one dollar per day and family 
wealth amounted to about $2,000. Taxes were little or 
nothing and life was simple, f The development of in- 
dustry in the country at the time was retarded in no small 
degree by the scarcity of free labor in the colonies, for 
the work of agriculture was carried on largely by inden- 
tured servants and slaves. The free land, too, affected 
the labor-market and made wages relatively high. 

* Including Ireland. 

f Henry Adams ; History of the United States, vol. i, p. 9. 



INDUSTRIAL EVOLUTION OF AMERICA 45 

Still it is not to be understood that there was no 
manufacturing at the time, for many efforts were made 
to encourage the business of producing commodities. 
Washington, in a letter to the Marquis de Lafayette,* 
said : " Though I would not force the introduction of 
manufactures by extravagant encouragements, and to 
the prejudice of agriculture, yet I conceive much might 
be done in the way of women, children and others, with- 
out taking one really necessary hand from tilling the 
earth. Certain it is, great savings are already made in 
many articles of apparel, furniture and consumption. 
Equally certain it is, that no diminution in agriculture 
has taken place at a time when greater and more sub- 
stantial improvements in manufacturing were making 
than ever before were known in America. In Pennsyl- 
vania they have attended particularly to the fabrication 
of cotton cloths, hats and all articles in leather. In Mas- 
sachusetts there are established factories of duck, cord- 
age, glass, and several other extensive and useful 
branches. The number of shoes made in one town, and 
nails in another, is incredible. In that State and Con- 
necticut are also factories of superfine and other broad- 
cloths. I have been writing to our friend General Knox 
this day to procure me homespun broadcloth of the Hart- 
ford fabric to make a suit of clothes for myself. I hope 
it will not be a great while before it will be unfashion- 
able for gentlemen to appear in any other dress. I use 
no porter or cheese in my family but such as is made in 
America." 

Again, in a letter to Thomas Jefferson, the first Pres- 
ident says : f " Exclusive of these things, the greatest and 
most important objects of internal concern which at pres- 
ent occupy the attention of the public mind, are manu- 
factures and inland navigation. Many successful efforts 

* Washington's Works, vol. ix, pp. 64-65. 
f Washington's Works, vol. ix, pp. 469-470. 



46 MODERN INDUSTRIALISM 

in fabrics of different kinds are every day made. Those 
composed of cotton, I think, will be of most immediate 
and extensive utility. Mr. Milne, an English gentleman 
who has been many years introducing those manufactures 
in France and whose father is now carrying them on un- 
der the protection of government, at the royal Chateau 
of Muette in Passy, has been at my house this week, and 
is of the opinion that they may be prosecuted in America 
to greater advantage than in France or England. He 
has been almost two years in Georgia stimulating and 
instructing the planters in the production of cotton. In 
that State and South Carolina it is said the cotton may 
be made of most excellent quality and in such abundant 
quantities as to prove a more profitable species of agri- 
culture than any other crop. The increase of that new 
material, and the introduction of the late improved ma- 
chines to abridge labor, must be of almost infinite con- 
sequence to the prosperity of the United States. 

" A desire of encouraging whatever is useful and 
economical seems now generally to prevail. Several 
capital artists in different branches have lately arrived 
in this country. A factory of glass is established upon 
a large scale on Monocacy River near Eredericktown in 
Maryland. I am informed it will this year produce glass 
of various kinds, nearly to the amount of £10,000 value. 
This factory will be essentially beneficial by having the 
navigation of the Potomac completely opened. But the 
total benefits of that navigation will not be confined to 
narrower limits than the extent of the whole western 
territory of the United States." 

Undoubtedly the fertility of the soil retarded the 
growth of manufacturing for the reason that it produced 
an immediate and effective return beyond what manu- 
facturing could do at the time. There were attempts 
here and there, as has been indicated in the letters of 
Washington, to produce commodities of one kind or an- 






INDUSTRIAL EVOLUTION OF AMERICA 47 

other. These, by the year 1790, had reached a consid- 
erable amount, although the early manufactures were not 
particularly successful. In the effort of ship-building, 
however, the people of the United States made greater 
progress than in any other industry. Vessels were built 
at points along the eastern coast, particularly in New 
England. Cordage, cables, lumber and naval stores were 
produced in considerable quantities. Alexander Hamil- 
ton in his first report on the manufactures of the United 
States enumerated a large number of articles that were 
produced in the country at the time, and among these 
were fine leather goods, hardware, ships, machinery, 
manufactures of flax, hemp, cable, cordage, sail-cloth, 
twine, bricks, tiles, spirits and liquor, paper, fur and wool- 
en hats, refined sugar, oils, soap, tinware, carriages, snuff 
and tobacco, starch, paints and gunpowder. 

The attitude of England toward the colonies under 
the colonial system then existent, undoubtedly affected 
the manufacturing activity of the American people. The 
English laws during the colonial period took three forms: 
First, of navigation acts, based on the laws of 1651 and 
1661 against the Dutch. Under these acts shipments 
from the colonies could only be made in English ships 
and the master and crew of each must be English. The 
object was to create a monopoly of the English colonial 
trade for the subjects of the crown. Under this act ship- 
building became the principal business of New England 
and undoubtedly it was greatly stimulated by the naviga- 
tion laws of England, although it had the effect of retard- 
ing our manufacturers in every other line. The second 
group of acts involving the welfare of the colonies were 
those of the " Enumerated Articles." In the year 1660 
Parliament forbade the exportation of enumerated goods to 
any country save England. Tobacco was the only article 
then exported by the Americans that came under this 
restriction. Rice and naval stores were added to the list 



48 MODERN INDUSTRIALISM 

in 1706 and copper and beaver-skins in 1722. None of 
the staple articles, such as fish, vessels, timber and rum, 
were ever enumerated. These restrictions did not affect 
many persons, and the probabilities are that the Enumer- 
ated Articles Act of that year was not particularly dis- 
astrous to the American colonies. The manufacturing 
laws were undoubtedly more injurious to the Americans. 
In 1667 it was enacted that no wool nor woolen goods 
should be loaded on board of any vessel or carriage for 
export. The attempt was to absolutely prohibit and shut 
up manufacturing in this country for distant ports. In 
1719 a resolution was passed to the effect that manu- 
factures in America were likely to lead to the freedom 
of the colonies. Thirteen years later the exportation of 
woolen hats was forbidden and in 1750 it was declared 
that no steel furnaces should be erected in the colonies. 
As importation duties on bar iron were removed at that 
time, the prohibition of steel manufactures was balanced 
in some degree by this concession. In the Molasses Act 
of 1733 duties were laid on molasses to prevent its im- 
portation to America, but the English government never 
attempted to enforce it and after 1760 the entire mer- 
cantile policy was changed and an attempt was made to 
secure a levy from the colonies instead of relying upon 
import duties for funds. On the whole, it might be said 
that instead of an injury being done by these acts, a great 
deal of good resulted in the creation of trade and the 
stimulating of it by export bounties in the production of 
naval stores.* 

After the separation of the colonies from the mother 
country the attitude of England was entirely changed ; 
America understood at once that political and economic 
freedom were two different things, and that she should 
be compelled to adopt some system of encouragement if 
she wished to enlarge her manufacturing capacity. Eng- 
* Ashley, Quarterly Journal of Economics, November, 1899. 



INDUSTRIAL EVOLUTION OF AMERICA 49 

land had already by this time (1790) developed textile 
machinery and the steam-engine, and she was determined 
that every effort should be made to prevent the exporta- 
tion of any machinery to America. By the 21st George 
III, chapter xxxvii, it is provided " that any person who 
packed or put on board or caused to be brought to any 
place in order to be put on any vessel for exportation, 
any machinery, engine, tools, press, paper, utensil or im- 
plement, or any part thereof, which is now or is here- 
after used in any part of the manufacture of woolen, 
linen, or silk manufacture of the kingdom or goods where- 
in wool, or goods wherein cotton, linen or silk are used, 
or any model or plan of such tools, press or implement, 
shall forfeit any such machine and all goods packed there- 
with and £200 and suffer imprisonment for one year." * 
A year later (1782) the law was still further extended 
and the penalty made £500. Acts were also passed pre- 
venting the emigration of artisans ; and these laws, en- 
forced with great vigilance, naturally placed serious ob- 
stacles in the way of establishing the factory system in 
America. To establish, the factory in this country the 
people were compelled to resort to smuggling or to the 
invention of machinery. Both methods were followed 
until a very considerable knowledge of the manufacture 
of cotton goods was secured. Bounties were offered by 
the various States for the purpose of stimulating manu- 
facture, and here and there in the different parts of the 
country small enterprises were established, but it re- 
mained for Samuel Slater, an Englishman, to establish 
in 1790, in the town of Pawtucket, R. I., what was the 
first complete factory in the United States. The plans 
of the machinery and the skill which Slater possessed 
gave a great stimulus to colonial manufacture. The in- 
vention of Eli Whitney in 1792, further contributed to 
this progress, so that at the close of 1810 Albert Gallatin, 

* Wright, Factory System of the United States, Ninth Census. 
5 



50 MODERN INDUSTRIALISM 

Secretary of the Treasury, could say that there were 
87 cotton factories in the United States, employing 
80,000 spindles. The census for the same year estimated 
the manufactured product of the country at $198,- 
613,474. 

Beyond the Atlantic seaboard, at the eastern base of 
the Appalachians, and in the Ohio valley industry grew 
with the needs of the people. The trader made rapid 
advances toward the west, exchanging guns and goods 
with the Indians for furs and pelts and erecting a strong 
barrier against the next wave of pioneer and farmer. 
When these came they found Indians with arms, an ob- 
stacle in the way of civilization.* But the very obstacle 
bound the people of the West in a common interest and 
mutual protection, making it possible for them to hold 
their settlements until the establishment of army posts. 
The industries were for a long time domestic in character 
until the coming of the farmer and small producer. 

The industries of the western settlements were the 
trade in furs and agriculture. The towns on the Missis- 
sippi were unusually well situated to carry on the fur 
trade, the river furnishing a way of transportation to the 
hunting territory and to the market, and as early as 1705 
twenty thousand hides and skins were shipped from the 
Wabash Valley. At an early date the settlers in the Ohio 
Valley began to cultivate the soil, raising maize, vegeta- 
bles and European fruit. That some commerce was car- 
ried on at the time is evinced by the shipment of six 
hundred barrels of flour from the Wabash to New Or- 
leans in 1746. An eminent authority declares that 
619,681 barrels of flour and 1,000,000 bushels of wheat 
together with large quantities of tobacco were sent to 
Europe in 1791. 

Fishing and mining were early developed, although 
mining was largely retarded because of the lack of expert 
* Turner, Significance of Frontier in American History. 



INDUSTRIAL EVOLUTION OF AMERICA 51 

knowledge in the locating of mines and their operation. 
Lumbering was the fourth extractive industry, and stimu- 
lated the manufacture of vessels. Then, too, consider- 
able quantities of lumber were exported. The authority 
quoted above * says that in 1792, 65,846,024 feet of lum- 
ber, 80,813,357 shingles, 32,039,707 hoops and large 
amounts of pitch and tar were exported, which all points 
toward the natural development of the extractive indus- 
tries after the opening of the new country. 

The manufacturing stage began with the household 
industries. Men were compelled to produce their own 
clothing and many of their own utensils for use in their 
every-day life. Communication was so poor that it was 
impossible to sell any surplus that might be made, 
so that for a considerable time there was no large pro- 
duction of commodities in America. There followed a 
little later, as the struggle with nature was lightened, a 
larger production of household commodities for the mar- 
ket and a very considerable export trade was built up, 
based on household manufacture. But almost from the 
beginning the production of commodities by machinery 
was going on slowly here and there. Iron was discovered 
in Virginia in 1610. It is true that it was a sort of bog 
iron found in the marshes and ponds, but nevertheless 
iron. Some works were established in Massachusetts as 
early as 1648, and it is declared that in 1731 in New 
England there were 6 factories for manufacturing hollow 
ware and 19 forges for iron. By the middle of the latter 
half of the century many iron articles were manufactured. 
Later on iron was discovered in New York in 1775 and 
shipments made from the port of New York to the extent 
of 2,400 tons of pig iron and 750 tons of bar iron. In 
Pennsylvania iron had been discovered as early as 1685 
and it was refined in 1692 and successfully used for manu- 
facturing in 1716. 

* Wright, Industrial Evolution of the United States, p. 73. 



52 MODERN INDUSTRIALISM 

Still, up to 1800 the people of the United States were 
practically engaged in the same industries as the colo- 
nists. These industries were agriculture and the kindred 
occupations that are found in any society supporting it- 
self by the cultivation of the soil. Everything that could 
be imported was brought to our shores in English vessels 
and paid for by agricultural products. Manufacturing 
was consequently limited to those things that could not 
be brought from abroad. In fact, America was at this 
time the great market for English goods, for the profit- 
able markets of Europe were disturbed by a state of war 
which fixed attention upon American demands despite the 
laws passed to check an extended commerce with that 
nation. 

A series of restrictive measures both at home and 
abroad, the war conditions existing in Europe, and the 
War of 1812, shut off the profitable trade of the previous 
years, but production at home was greatly stimulated, 
particularly that of articles formerly imported. After 
peace was declared England again flooded the American 
market with her pent-up goods, as she did in 1785, and for 
a time this monopolization of the market checked the 
growth of American manufactures. By the year 1818 the 
domestic industries had been almost entirely superseded 
by machinery. The introduction of a coke blast-furnace, 
puddling and rolling processes, recreated the iron industry 
by 1815. Erom this date on to 1850 great strides had 
been made in the organization of mills and in the adapta- 
tion of machinery to American conditions. This changing 
growth may be noted in the number of cotton factories in 
1831, 1840 and 1850. In the first mentioned year there 
were 801, in the second 1,240, and in the third 1,074. 

One influence of great importance in the development 
of the Ohio and Mississippi valleys thus far has been given 
but little attention in the pages of this chapter. Refer- 
ence is made to the national land policy. A serious con- 



INDUSTRIAL EVOLUTION OF AMERICA 53 

troversy over the public domain embittered the States 
in their attitude toward each other for a number of years. 
In 1778 Maryland was the only State standing out against 
State ownership of the public domain. The Articles of 
Confederation fixed the western limits of the States in 
1781 and three years later Virginia's proposal was accept- 
ed Under six conditions by Avhich the territory was turned 
over to the .Federal Government. The conditions were, 
to lay out the areas in States, to develop in them a repre- 
sentative form of government, confirm the titles of the 
French settlers in the territory, reserve 150,000 acres 
for officers in the Revolutionary army, to make good 
north of the Ohio any deficiencies in land grants south- 
east of that river, and to dispose of the rest for the public 
good. The latter clause necessitated some plan for land 
sales and in 1785 a plan incorporating the present divis- 
ions of township and section was established. But little 
attention was paid to land sales during the establishment 
of the new government, and the matter dragged on until 
the appearance of the first territorial delegate in Con- 
gress. By 1800 there were 500,000 people living west 
of the Alleghanies. The defeat of the Indians by Wayne 
six years previous insured peace and increased the de- 
mands for land. Congress resolved upon land offices, the 
classification of the land and its sale by auction and pri- 
vate sale on long credit. It was the beginning of the 
American system and the opening of cheap lands to the 
poor man on easy terms. 

Meantime a marvelous social betterment had taken 
place in the country. By the end of the first quarter of 
the nineteenth century there was a great increase in 
wealth and population and perhaps above all in the 
means of communication. Through the agency of this 
addition to the national equipment business had greatly 
expanded and many new opportunities opened to mer- 
chants. The successful operation of the Erie Canal and 



54 MODERN INDUSTRIALISM 

the revolutionizing of business by the opening of new 
territory to producers and distributors created a demand 
for canals in other parts of the land. The enthusiasm 
for internal improvements immediately following this 
period was intensified by the demand of the pioneers on 
the frontier for the goods produced on the coast. To 
get these easily and without delay necessitated facilities 
for transportation, hence the pressure brought by the 
Middle West on Congress and legislatures to build canals 
and roads. The tariff history of the forties and fifties 
may be explained in much the same way. Protection 
at home was necessary in order that factories might be 
erected in the interior to provide for the wants of a people 
living on the frontier.* 

Sectionalism of an economic character even at so early 
a date had made its appearance in the national history. 
The interests of the North and South were opposed. The 
South without manufacturing or internal trade interests 
objected to the tariff and the Federal internal improve- 
ments, while the cotton-gin and the textile inventions had 
stimulated the demands for cotton, making its cultivation 
the all-absorbing business of the South. In the thirty 
years from 1790 the annual export of this product had 
gone to 281,000,000 pounds valued at $35,000,000. The 
boundless fields of ore and coal were neglected, mechan- 
ical inventions were disregarded and the energies of the 
South confined to the raising of one plant and the trade 
for foreign merchandise. An immense trade between 
Great Britain and the South thus came into existence 
that stood in the way of a national exchange of products 
between the North and South and brought the latter to 
oppose anything that was likely to affect her relations 
with Great Britain. 

While the North was establishing railroads and build- 
ing factories, the South remained comparatively content 
* Turner, Significance of the Frontier in American History. 



INDUSTRIAL EVOLUTION OF AMERICA 55 

with her one great industry and did not enter into the 
rapid economic development of the West. She failed to 
impress her organization upon the expanding and chang- 
ing frontier so that the nation steadily grew more west- 
ern and northern in type. In the end this was sure to 
create political dissension as a consequence of economic 
separation. 

There were some fluctuations in the movement of in- 
dustry prior to the Civil War period, due to the already 
mentioned War of 1812, the depression of 1837 and the 
crisis of 1857. Manufacturing before 1820 was well-nigh 
destroyed by the combined influences of the tariff of 
1816, disordered currency, the hard times of 1819, and 
the great importations of English goods. Despite these 
interruptions the progress since 1830 was steady, and 
on the whole the influences at work were permanent. 
The shrewd practical sense of the American, drilled into 
him by the hard fight with nature, had equipped him for 
quick and ready acceptance of inventions and the appli- 
cation of machinery to production. 

The decade from 1830-1840 witnessed the beginnings 
of vast changes in the economic organization. At the 
end of the decade there were 2,818 miles of railroad 
which were to double every five years until the Civil 
War; steamboats navigated the lakes and rivers; mechan- 
ical inventions were rapidly appearing; anthracite coal 
was found applicable to the creation of steam and great 
progress was made in the manufacture of agricultural 
machinery, stimulating the cultivation of the soil on 
a large scale. The nation was gradually passing from a 
rural to an urban population, the railroads extended the 
limits of habitable territory, the factories concentrated 
the people. Corporations made their appearance and both 
the simple industries and their management became more 
complicated in meeting the wider wants of a growing 
people. The equality of the earlier days was broken down 



56 MODERN INDUSTRIALISM 

and a distinction between employer and employee began 
to appear, a forerunner of the days of the captain of 
industry. The simplicity and uniformity of life were su- 
perseded by incoming class distinctions and greater com- 
plexity of social organization. 

The Civil War proved to be the great dividing line of 
the century, for the type of industry, labor organization, 
forms of transportation, and organization of capital dif- 
fered greatly before and after that event. During the 
first half of the century comparatively slow progress had 
been made and, such as it was, was confined to the north- 
eastern part of the country. The factory towns had 
sprung up in New England because capital, which, in the 
newer agricultural community, was difficult to secure, was 
provided by the seafaring population. Aided by this 
advantage and the good environment and water-power, 
manufactures thrived in New England, while an abun- 
dance of fuel in the West and Southwest and the in- 
troduction of steam caused the mechanical industries to 
spread gradually in those directions and gave in the end 
a much wider range of the arts. Despite the apparently 
threatening political complications of the thirty years 
prior to the war the period was one of remarkable eco- 
nomic activity. The telegraph and cable made their ap- 
pearance in the forties, and agriculture, under the encour- 
agement of numerous inventions, and many discoveries, 
made considerable progress, but nothing like the de- 
velopment under the liberal land policy of the government 
after the Civil War. In the decade just before the rebel- 
lion the wealth of the nation increased 120 per cent, the 
value of farms increased 103 per cent, manufactures 87 
per cent, exports developed 171 per cent and the railway 
mileage increased 220 per cent. Just prior to the war a 
number of railroads reached the Mississippi, but the trans- 
portation problem was far from solution. 

Despite this rapid growth and favorable showing, the 



58 MODERN INDUSTRIALISM 

element needed was transportation. The roadways were 
poor, distances great, population scattered and markets 
largely local. It was therefore necessary to build road- 
ways and railroads as quickly as possible, and this was the 
great task confronting the nation, for upon it depended 
the future manufacture, internal trade, and foreign com- 
merce. 

Glancing hastily at the development of transportation 
facilities in the United States there appear to be three 
general periods, each one having its special character- 
istics. The earliest was the construction of roadways, 
followed by canal-building and finally by railroad crea- 
tion. The first two periods had come and gone by the 
time of the Civil War and were mutually related. 

It was not until 1790 that the paths and roadways 
through forest and wood were superseded by the turn- 
pike. So poor were the roads that Madison spent a week 
in going from New York to Boston by stage, while the 
cost of cartage of a cord of wood for a distance of twelve 
miles was three dollars. To overcome these difficulties 
various attempts were made. Mr. Gallatin, Secretary of 
the Treasury, in his report in 1807 recommended a sys- 
tem of improvements in roadways along the Atlantic sea- 
board to cost $3,000,000, but Congress failed to make the 
appropriation. A number of roads under State aid were 
built from the East to the West and late in the first quar- 
ter of the century the United States began the National 
Turnpike extending from the Potomac River to Vandalia. 
Behind the demand for roads was a clear conception of 
their necessity. The people of the Middle West recog- 
nized the necessity of outlets for their products, especially 
in the exchange of goods with the East. Plans were pro- 
jected for roads connecting rivers, and canals leading from 
the rivers to the Great Lakes. Home companies were 
organized in the earlier part of the agitation but proved 
fearfully inadequate. The burden was then shifted, 



INDUSTRIAL EVOLUTION OF AMERICA 59 

whenever possible, to the State and Federal Govern- 
ments. In the public lands the people found a treasury 
which, if accessible, would provide the funds for the im- 
provements. To this, however, objection was made that 
the public lands were to be used for the payment of the 
public debt; nevertheless road-building and canal con- 
struction went on in a more or less unsatisfactory way 
until the coming of the railroad. 

The first canal in the United States was built in 1750 
in Orange County, New York; soon after this the feasi- 
bility of a canal between the Hudson River and Lake 
Erie was recognized, but nothing was done until the next 
century. Many short canals were constructed, especially 
in the Potomac Valley region, furnishing for a consider- 
able time the means of transporting commodities; the 
freight charges were very high, amounting at times to 
one dollar and a half a ton-mile. Such charges, in the 
face of the fraction of a cent per ton-mile of to-day, are 
almost incredible; they were nevertheless much less than 
the road charges of that time. The growing importance 
of the Middle West brought more and more prominently 
before the people the necessity of a lake and Hudson 
River canal. The suggestion was made in the last 
quarter of the eighteenth century, but it required nearly 
fifty years before the Erie Canal was open for traffic in 
1825. The prophecies of the canal advocates were by no 
means unfulfilled; almost at once there was a marked 
influence upon the commerce and trade in the State of 
New York, while at the same time the canal contributed 
measurably to the development of New York City. In 
1826 the tolls were $762,000 and in 1853 reached the 
large sum of $3,000,000. 

Two great systems of transportation, developed under 
different influences but for the same purpose, could not 
long exist without coming in conflict. The railroad orig- 
inated as a mere feeder to the canals, but grew so rapidly 



60 MODERN INDUSTRIALISM 

that by the middle of the century the two became serious 
competitors. The contest was first one of profits, and 
then as to whether the canal could pay expenses. By 
1870, the canal was forced to take what the railroad 
would let it have. The canal failed at this time in the 
history of transportation because it could operate but 
seven months in the year and it was constantly affected 
by floods or lack of water. The railroad was the steadier 
means of carriage and as such succeeded. The United 
States has never had an adequate system of roadways and 
canals. This statement — true to-day — was still truer sev- 
enty-five years ago. The great distances, vast areas of 
land, wonderful resources, all demanded an adequate sys- 
tem of transportation. These conditions the railroad 
came nearer meeting than the canal or roadway. It was 
therefore at an opportune time that the railroad entered 
into the civilization of the United States. Loosely bound 
by commercial and political ties the railroad built up 
stronger affiliations than could be secured at the time 
through patriotism. 

In the United States the railroad began as a local 
road, built largely by subscriptions and bonuses secured 
from the people living in the district through which it 
passed. The financial panic of 1837 materially checked 
railroad growth and very few improvements were made 
for a period of nearly ten years. The gold fever of 1848 
stimulated the building of railroads in all parts of the 
country, but more particularly in the Middle West. The 
Rock Island Railroad reached the Mississippi in 1855, and 
it was just a little later than this that the United States 
Government enlarged the scheme of giving land grants 
to railroads. The first land grant was given to the Illinois 
Central in 1836. The Central Pacific received from the 
Government in 1862 $30,000,000 and a land grant of 
23,000,000 acres. The Civil War checked the period of 
extension and it was not until 1869 that we find the rail- 



INDUSTRIAL EVOLUTION OF AMERICA 61 

roads building into the upper Mississippi Valley. Then 
came the crisis of 1873, which stopped railroad-building 
until 1879, when it was renewed, and during the next 
four years extensions were rapidly pushed in the South- 
west and Rocky Mountain region. It is stated by author- 
ities that in these two sections the increase in mileage 
was 126 per cent for the Mississippi Valley and 168 per 
cent for the Southwest and the Rocky Mountain regions.* 
By the middle of the century there was noticed a marked 
tendency toward consolidation. In 1853 the New York 
Central was organized as a sort of combination road con- 
sisting of ten local roads; in 1867 the New York Cen- 
tral and Hudson River roads were united and somewhat 
later the Lake Shore and Michigan Southern was added 
to the system; the. Pennsylvania Railroad secured control 
of the Pittsburg, Fort Wayne and Chicago line in 1858, 
and about the same time the Baltimore and Ohio extended 
its line to Chicago. These are the most marked examples 
of consolidation in the middle of the century. 

This development, making rapid progress in the North, 
was disturbed by the Civil War. At its close a new indus- 
trial era was at hand. One million citizens turned from 
military life to the work of industry. Previous to the 
war the North had felt the full influence of the gold 
discoveries in California and Australia, the growth of 
transportation and the immigration from Europe, but in 
the fifty years from 1810-1860 the South remained un- 
moved while the Middle West and Northwest developed. 
In the North the mechanical industries had thrived, con- 
centrating population, while in the Southwest the popula- 
tion was scattered and capital was lacking. The Civil War 
changed these conditions; the cheap soils, cotton-gin, good 
markets arid mobile labor stimulated the South to neAV 
activities and created there the nucleus of a manufactur- 
ing section. 

* Hadley, Railroad Transportation, p. 38. 



62 MODERN INDUSTRIALISM 

Eight years after the surrender of Lee, the railroad 
mileage of the United States had doubled; thirty thou- 
sand miles, in addition to the eighteen hundred miles of 
Pacific railway, were constructed from 1865 to 1873. 
Fertile territory was opened to agriculture by railroad 
extension, settlers rushed in, capital came from Europe, 
and the United States took high rank as an agricultural 
nation. 

The evil days of the seventies found the United States 
undergoing rapid development. The disastrous panic of 
1873, world-wide in area and aggravated in the United 
States by the suspension of specie payments from 1862- 
1879 and the excessive stock-watering, disturbed all in- 
dustries and activities. The depression felt long before in 
the South had resulted in the formation of the Grange. 
which a few years later was to bear an important part in 
the settlement of transportation charges. In the mechan- 
ical industries, labor unions had been organized with, in 
one instance, a membership of one million. Promoters 
were especially daring in the field of transportation, wreck- 
ing railroads and engaging in wholesale stock-watering. 
The times were such as to evoke an especially bitter feeling 
against railroad corporations and in consequence there 
appeared a wide-spread desire to limit their power by 
legal means. 

Reckless rivalries, ruinous borrowing and excessive 
extravagance were the ruling policy. Such a policy on 
the part of transportation lines was directly opposed to 
the liberal land grant homestead laws of the Government. 
Desirous of seeing the vast areas of rich land cultivated 
and settled, Congress had passed a series of laws throw- 
ing open the public domain to settlement. The railways, 
heavily indebted, were compelled to keep up rates while 
the farmer had moved too far west. Both stood in the 
way of the rapid completion of the national organization. 
It was seemingly necessary right there and then to thresh 



INDUSTRIAL EVOLUTION OF AMERICA 63 

out the matter. Action was begun by Grange legislation 
and drastic laws were passed against the railways, for 
their managers had, in the words of Charles Francis 
Adams, " got it in their heads that they were not bound 
to furnish equal facilities to all, and, indeed, that it was 
in the last degree absurd and unreasonable to expect them 
to do so ! " The movement from this point was a neces- 
sary one. In the course of ten years it cleared the field 
of many questions and settled through courts of law the 
principles of legislation, while it laid the foundation for 
the Federal and State regulation seen a little later in the 
Interstate Commerce Commission and State railroad com- 
missions. 

Despite the controversy over railroad rates the settle- 
ment of western lands went steadily on and the railroad 
mileage increased rapidly during the eighties. Condi- 
tions during this decade were unsettled and disturbed. 
It was in fact a ten years of excessive competition, of 
lawless disregard of investors' rights, but a period never- 
theless of invention and progress. The railroad problem 
was not solved, the national organism was not completed. 
The Pacific slope with its wealth and resources was a 
distant country, connected with the East by patriotism 
and one railroad line. The Northern Pacific, chartered 
in 1869, did not finally reach the western ocean until 
1883 ; a year or two later the Southern Pacific and the 
Atlantic and Pacific railroads were built to the Pacific 
coast. Early in the next decade, 1893, the Great North- 
ern was completed, and the territory of the United States 
was bound by rail and wire together in one organism well 
on its way toward its completion. By 1880 the old fron- 
tier line was broken and the day of the pioneer and In- 
dian trader was passed. The unbroken line of pioneer 
settlement no longer existed, for here and there were 
isolated groups of people on the extreme edge of civiliza- 
tion. 



64 MODERN INDUSTRIALISM 

The period of excessive competition was over, both 
in railroad and manufacturing industries. Railroads had 
fought. and battled with each other, they had been reor- 
ganized at great expense and energy and were ready for 
agreement and consolidation. The same tendency was 
noticeable in the field of production ; concerns that had 
struggled bravely for existence were ready and willing 
to combine. The progressive division of labor and rapid 
extension of commerce during this period, stimulated by 
the improvements in transportation, resulted in the re- 
moval of many industries, formerly domestic and agri- 
cultural, to the factory. Many trade conditions pointed 
to concentration of industry as the ultimate result. The 
decade begins and ends with vast combinations of capital ; 
at first speculative in character, later on tending more to 
justify themselves as productive agencies. 

Much of this development had taken place behind 
tariff walls. Free from harassing foreign competition 
capital was diverted into all sorts of industries and labor 
was employed without much regard to the national or- 
ganization or the future world's market. The exports 
of the United States steadily increased, reaching the enor- 
mous figure of $1,460,462,806 at the close of the century. 
Her people, however, little recognized their place in the 
markets of the world ; they were in fact by no means sure 
of the national industrial organization. A merchant 
marine was not a part of the national equipment, but the 
railroads had already reached the stage of community of 
interest and speculation was rife as to the future control 
of the Oriental trade. Despite the beneficial influences 
of the tariff in a few instances, it held in check for many 
years the solution of the money question. So long as the 
United States was not interested in world markets it did 
not make so much difference about her money system, but 
once in the world's struggle the necessity was great in- 
deed for a standard money. The reasons actually given 



INDUSTRIAL EVOLUTION OF AMERICA 65 

for the change in the money system were by no means the 
ones hinted at above. It was considered a domestic prob- 
lem, but the national organization would have been very 
incomplete without the gold standard. 

In the field of labor organizations were growing 
stronger and strikes less frequent. Some severe contests 
had taken place between organized capital and labor, and 
the interests of both as well as those of the public de- 
manded arbitration of disputes. This feature of labor 
contests seemed fairly established at the close of the cen- 
tury. From the point of view of national organization 
the unity of interests of the two principal agents of pro- 
duction was a great advantage to the nation that possessed 
such a condition. It meant the saving of millions of 
dollars in property, wages and products and an advance 
over any other nation less favorably situated. Through 
the agency of the trade-union much has been done to 
better the condition of the toiler in home and work-shop. 
Seconded by intelligent employers, the movement for bet- 
terment in producing conditions has tended materially 
toward the advancement of national interest in the world's 
market. Free from excessive militarism and favored by 
a superb school system, the workers of the nation have 
been able to devote their time and attention to the crea- 
tion of products without the burdens of heavy taxation. 
This has been and will be a great advantage to America 
in the trade conflicts of the twentieth century. 

Regardless of the rapid expansion of railroad mileage, 
factory products, and exports of the nation there was a 
wide-spread feeling among the people that industrial prog- 
ress had been made to some degree at the expense of 
industrial liberty. Men felt the discriminating rates of 
railroads, the manipulated prices of food products and 
the predatory methods of some capitalized combinations. 
Our institutions had outgrown our principles. The whole 
economic history of the United States had been an effort 
6 



66 MODERN INDUSTRIALISM 

to apply principles of free competition with a minimum 
of government interference *in a new country. The lack 
of legal restraint may account for some of the history 
of the seventies. More and more as the century grew 
older efforts were made to hold in check the rapidly ad- 
vancing forces of industry. In the railroads we have the 
most typical example of American organization and busi- 
ness methods and it was to them that the States were first 
forced to turn their attention. Massachusetts as early as 
1869 formed a commission to regulate the affairs of rail- 
roads, and, without power, this commission, by reports 
and publicity of accounts, did much to better the railroad 
situation in that State. Its example was followed in other 
parts of the country, but the State commissions found 
their jurisdiction limited by the lack of control over in- 
terstate commerce. This led to the formation of a com- 
mission by that name in 1887, but after many years of 
effort the Interstate Commerce Commission is unable to 
see any great progress in the work and the railroads are 
still unregulated in the business of transportation. In 
1890 the Anti-Trust Act was passed by Congress for the 
purpose of controlling combinations, but the attempts to 
enforce it have been almost without success. The vari- 
ous States have followed the example of the Federal Gov- 
ernment, but all of the legislation has been directed 
toward the destruction of combinations as the harborers 
of monopoly. The legislation has been, instinctive instead 
of scientific. The railroads continue to cut rates and the 
trusts attempt to enlarge their monopolies. From the 
point of view of national organization both railroad and 
combination are needed, but to render their best service 
they must be shorn of their evils. 

On this point a recent writer* well says: " To the 
country that shall at an early date unite in this way col- 
lective prosperity with internal harmony, there is offered 
* J. B. Clark, Control of Trusts, p. 82. 



INDUSTRIAL EVOLUTION OF AMERICA 67 

the position of economic leadership. It will have over 
other countries the same advantage which a man has over 
other men when he precedes them in the use of efficient 
machinery, gaining large profits for himself and forcing 
his rivals to follow in his footsteps, in order to save them- 
selves from being crowded out of the field. It is not 
merely because he has the machine, but because he has 
it before others get it, that he reaps a return in profit 
and power. The country that shall utilize the power of 
the trust for good, while curbing its power for evil, will 
have as its reward national profit and a position of leader- 
ship among nations. " The United States has the power, 
the organization and the equipment, but before her lies the 
problem of securing harmony. 

At the close of the nineteenth century the United 
States had virtually completed her national organization. 
Railroads extended from ocean to ocean, telephone and 
telegraph were strung from one end of the land to the 
other, raw materials were brought to the sea, gigantic 
manufacturing plants, the acme of organization, produced 
vast quantities of goods for home and foreign consump- 
tion. She had gone through the throes of a money war, 
her banks were fairly established, her people settled and 
at work in all parts of the land. Unencumbered by old 
customs or a military system, progress had been rapid — 
so rapid indeed that new problems of industrial control 
were more imminent in the United States than in other 
lands. In the land of democracy the problem of indus- 
trial regulation was still to be solved. 



CHAPTEK IV 



THE RISE OF GERMANY 



Despite notions to the contrary Germany is not a 
new-comer into the family of nations. For hundreds of 
years she has exerted a great power in the politics of 
Europe and previous to the nineteenth century occupied 
at times an honorable place in the world's trade. As a 
unified national force and as a great world state her in- 
fluence in mundane affairs dates from the origin of the 
present Empire. 

Retarded by political disturbances, the jealousies of 
many petty States, and the encroachments of enemies upon 
German soil, Germany left her industries undeveloped 
and devoted her energies to political problems of so seri- 
ous a nature that time and skill were required for their 
solution. Political unity was necessary before her na- 
tional industrial organization could be completed. To 
accomplish this the slow process of history, the consoli- 
dating influences of successful wars and diplomacy of an 
unusual order were necessary. It was after such move- 
ments that a land divided into so many principalities was 
united and began the organization of its industrial forces. 

England and the United States, isolated by geograph- 
ical position, were freed from many problems that con- 
fronted Germany. In them the industrial changes that 
led to the substitution of a factory system for the old 
domestic forms of industry were the result of individual 

68 



THE RISE OF GERMANY 09 

initiative. Governments had encouraged, but little and 
often retarded by unwise laws the work of industrial ad- 
vancement, and so the individual was allowed to find his 
way in the new organization without restriction or much 
limitation by the State. In these States have thus come 
the gigantic problems that arise when the initiative of the 
individual has built up a system of industry that threatens 
the power of the State. In them political unity came as a 
result of economic forces, while in Germany the nation 
was born before the modern industrial organism was be- 
gun. With a highly centralized government knowing 
well what was desired, Germany entered at once upon 
her remarkable career. The industrial organization in 
America and England has been from the bottom upward, 
while in the German Empire the reverse has been true. 

The German State has taken the initiative, organized, 
directed and stimulated, and its final reward is the posi- 
tion now occupied by the German Empire in the world of 
politics and industry. 

Within the confines of the German Empire to-day 
live 56,000,000 people largely engaged in manufacturing 
and mercantile pursuits. During the nineteenth century 
this people has passed from an agricultural to an industrial 
nation. The year 1800 saw eighty per cent of the popu- 
lation agricultural, to-day but thirty per cent are so en- 
gaged, nevertheless crop acreage has increased and great 
improvements in agriculture have been introduced. 

At the time of the Napoleonic period industrial pro- 
duction was practically in the hands of the artisan class, 
which was organized in guilds of some strength. Through 
the medium of law a wider economic freedom was gained 
by breaking the power of the guilds, but custom and 
regulation so bound the productive interest of Germany 
that it was not until the end of the sixties that complete 
industrial freedom was secured in a majority of the Ger- 
man States. 



70 MODERN INDUSTRIALISM 

The appearance of the railway and its complete or- 
ganization heralded the coming of concentration in the 
manufactures of Germany. To-day there is no field of 
importance that the hand-worker can claim for his own, 
for the competition of the factory has penetrated into 
every industry in which he is engaged. As a conse- 
quence of this eliminating process the artisan has moved 
toward the country and smaller towns, endeavoring to 
meet the newer conditions by adopting, in so far as he 
can, the methods of the factory. Although the pressure 
of the newer industry upon the hand-worker and the do- 
mestic system has been great, nevertheless the two have 
in a measure been able to maintain themselves, the for- 
mer by settling in the smaller towns and the latter by 
moving to. thinly populated districts or large cities. The 
factory has therefore partially appropriated the field and 
forced the hand-worker and the weaver to do repairing 
and to act as retail merchants; nevertheless the domestic 
system will still be maintained by farmers in the thinly 
populated districts and by the laborers in the crowded cities, 
as a means of supplementing their incomes. 

The concentration of the population in cities has been 
very marked. In 18 75 there were but ten cities in the 
Empire of over one hundred thousand population, while 
to-day there are thirty-three over one hundred thousand, 
fourteen over two hundred thousand, seven over three 
and four over four hundred thousand. An explanation 
of this remarkable concentration is found in a series of 
events and movements. By 1848 there had been a very 
considerable transition from the " small " to the " large 
industries." The political changes of that year had been 
carried as far as they were destined to go for some time. 
Germany shared in the world expansion of commerce and 
trade that hinged upon the discovery of gold in Califor- 
nia and Australia in that year. Her cities then began 
to grow at a rapid rate, continuing until 1870, when, 



THE RISE OF GERMANY 71 

through the increasing immigration to America and the 
recruiting due to the Austrian and Franco-Prussian wars, 
there was a check in the rapid growth of city population. 
The crises which followed the rise of the new Empire 
and the industrial depression of several years checked 
the speculation following the termination of the French 
war and the payment of the indemnity, and after 1880, 
when a complete recovery had taken place from the ef- 
fects of the previous ten years, a steady and healthy ad- 
vance in German commerce and manufacture set in, which 
continued until 1897.* During this time German cities 
again rapidly increased in number and population. 

This vast change did not mean depopulation in the 
agricultural districts. There no advance in numbers had 
taken place, the percentage of persons engaged in agri- 
cultural pursuits steadily declining with the rapid growth 
of the urban centers, although up to the middle of the 
century ninety-five per cent of the food products consumed 
by Germany was raised on her own soil. A great change 
has taken place in this proportion, for to-day Germany 
draws much of her food supply from foreign lands. The 
agriculture no longer provides the necessities of life re- 
quired by her factory population, but the agrarians never- 
theless have complicated the situation by demanding 
protection that will carry farming to a condition of pros- 
perity equal to that qf manufacturing. The fact that 
agriculture is not as far advanced readily explains the 
anxiety of the agrarians. 

About the same number of people are employed in 
that occupation as in the United States, but the results 
are very dissimilar. The agricultural workers of Ger- 
many are divided into groups of laborers : those bound by 
long-term contracts and living in the house with their em- 
ployers, and those who may be referred to as free workers. 
These consist of the permanently employed and the " wan- 

* Weber, The Growth of Cities in the Nineteenth Century, p. 88. 



72 MODERN INDUSTRIALISM 

derleute." The heritage of property through the co-own- 
ership of land tends to hold the family together and to 
perpetuate group agriculture. Consequently the old sys : 
tern of land tenure, though modified in many instances, 
has resulted in the continuance of a small-farm system. 
It is said on reliable authority that there are in Germany 
2,275,000 farms of twelve acres or less. To use modern 
machinery on such plots of ground is impossible with any 
advantage, so small farming with high rates of expense 
to production continues, making it difficult for the home 
products to compete with those of the foreigner. 

At a disadvantage as compared with the rapidly grow- 
ing commerce of the industrial branches, the agricultur- 
ists have demanded redress. The partisans of " dear 
wheat " and " cheap bread " contend, in consequence, for 
legislative supremacy. A victory for either embitters the 
conquered in this important contest. 

In manufacture and commerce Germany has made 
marvelous progress. Factories have sprung up on every 
side; means of communication have been built, extended 
and nationalized; a merchant marine has been created; 
mining materially increased; invention and discoveries de- 
veloped, and the different industries, particularly the 
chemical and the electrical, pushed to unheard-of propor- 
tions. " Made in Germany " is read in all parts of the 
world; science and skill have done their work. In the 
field of foreign commerce this notable land stands second. 
Within the last twenty years the tonnage of vessels in 
her ports has gone beyond the thirty-three million mark. 
Her trade with North America has increased 128 per 
cent, with Australia 475 per cent, and with South Amer- 
ica 480 per cent. Favored undoubtedly by the experi- 
ences and experiments of her rival, Great Britain, Ger- 
many has made as much progress in the last quarter of a 
century as Great Britain has been able to do in a hundred 
years. How lasting the results will be, however, is an- 



THE RISE OF GERMANY 



73 



other question. Her fleet, which has come to be second 
in world importance and first in size and speed of steam- 
ers, is one of many evidences of industrial power pos- 
sessed in a high degree by Germany. 

The Germany of thirty-five years ago and to-day stand 
out in marked contrast, the one with a small commerce, 
largely agricultural in character, struggling against po- 




Industrial map of Germany. 

litical difficulties and poor trade facilities ; the other with 
a great commerce, a highly organized government and a 
colonial system. In the days of the first Germany a dis- 
ordered currency barred the door to the smooth workings 
of exchange and placed burdens upon shipper and con- 
signee alike. The banking was but little developed and, 
such as existed, well concentrated in the larger cities, 
furnishing in but an unsatisfactory way the credits needed 
for the conduct of business. The division of the territory 



74 MODERN INDUSTRIALISM 

into twenty-eight states under different laws and rules 
still further complicated the industrial machinery by 
varied forms of taxation and regulations of commerce. 
There existed a common language and a strong Prussian 
state, the hope of the future. 

Territorially, Germany is not ideally situated either 
from the point of view of military protection, fertility 
of soil or resources. Surrounded on three sides by strong 
enemies, her history has been rendered more stormy than 
it would have been if the nation had occupied a more 
natural resting-place. Still, with these disadvantages, her 
location in the heart of Europe brought some compensa- 
tions, for she was in a position to touch a great deal of 
the international trade passing over her borders. 

In the north and east are the lowlands, somewhat 
barren and hardly recognizable as fertile, nevertheless 
under the skilful agriculture of the Germans bringing 
forth creditable crops. Much of this part of Germany 
is taken up by lakes and marshes which alternate with 
sand-hills. In the southeast the land is a table-land al- 
most as barren. The fertile part of the Empire is found 
in the southern and western portions of Germany in the 
valleys of the rivers. Between the highlands known as 
the Baltic-Uralic lake plateau and the upland traverses 
of Brandenburg and Northern Silesia are the broad low- 
lands through which flow the Havel, Spree and the Oder. 

The physical obstacles have been easily overcome and 
a very complete canal system established uniting the 
rivers named with the Elbe and Vistula. Such seaports 
as exist have been extensively enlarged and the shallow 
rivers dredged, allowing the great vessels to come to the 
river ports of Bremen, Hamburg, Lubeck and Stettin. 
Not satisfied with a canal system by itself the German 
States have made every effort to make the seaports the 
heads of canals, and as a consequence goods going to or 
from the center of the Empire move easily and quickly. 



THE RISE OF GERMANY 75 

The railroads, instead of being hostile to the waterways, 
as in the United States, work side by side with the canals. 
The heavier freight is carried on the canals, giving the 
railroads the higher grade of traffic. One result only 
could come from a unified system of transportation, and 
that is greater commerce both internal and foreign. 

Each State regulates its own railways, a thing prob- 
ably wise, but at Berlin there sits at certain times in the 
year a council composed of representatives from the dif- 
ferent States. This council considers plans for the further 
unification of the railroad systems, until to-day there is 
the same unity of purpose seen in the railroad adminis- 
tration as was noticed in the canal system. All things, 
including telephone, telegraph, railroad and canal', are 
made to work together for the common good. The most 
careful supervision and foresight have been exercised in 
the beginning over the construction and operation of the 
railroads. Even as early as 1835 the Government held 
the position that it is the duty of the State to occupy 
such an attitude in relation to the railways that it may 
at any time in the future interfere in behalf of public 
interest. 

The evolution of state supervision is well presented 
in the stages of railroad legislation in Germany. Up to 
1843 only private roads existed, but in the next four 
years the Government, in an endeavor to stimulate rail- 
road construction, guaranteed a minimum rate of inter- 
est. From 1848 until 1862 the States steadily built 
roads which were somewhat interfered with by the specu- 
lative period existing from 1863 on to 1877, when many 
private roads were projected. Since the latter date there 
has been a rapid increase in the extent and number of 
state roads. In the construction of railroads the Ger- 
mans have never made the mistake of duplicating their 
railway mileage for speculative purposes. Every appli- 
cation to build a railroad must be accompanied by a state- 



76 MODERN INDUSTRIALISM 

ment of the condition, mileage and business of roads al- 
ready operating in the territory. Forms of railroad- 
building, such as standard rails, stations, and equipment 
have been determined and adhered to. In fact the " rail- 
ways are made real servants. All the administrative, 
legal and advisory bodies are originally connected with 
each other and the Parliament. The system presents that 
unity which a great business requires on the one hand; 
and on the other, that ramification and elasticity which 
the diverse and manifold interests of a great nation need 
for their growth and expansion." * 

The mineral resources of Germany are remarkable in 
their quantity, rather than in the high grade of the ores. 
Large deposits of coal, iron, zinc, copper, and silver are 
found in the provinces of Westphalia, Prussia, Saxony, 
Silesia, Lorraine, Harz and Luxemburg. The coal-fields 
are extensive — the richest in Europe — and furnish Ger- 
man industries with fuel at low prices. The coal is well 
situated in reference to the iron ore so that there is no 
necessity of long-distance transportation. Although the 
iron ore is far from the richest quality, nevertheless the 
science of smelting has been so far advanced that no great 
difficulty is found in getting a good product. The devel- 
opment of the metallurgic industries has been simul- 
taneous with that of mining. In the mining and iron 
district round about Dortmund, Duisburg and Cologne 
the population has in twenty years increased eighty per 
cent. This double production of iron and coal has given 
the metal and machine industries a great impulse, creat- 
ing cities of large population and wealth. 

It is perhaps in the electric industries that Germany 
has made her most rapid advancement. Throughout the 
Empire electric enterprises of all kinds are being devel- 
oped by companies engaged in the building of plants 
and tramways. Through this means small villages off 
* United States Industrial Commission, vol. ix, p. 983. 



THE RISE OF GERMANY 77 

from railroads and canals are brought into connection 
with a wider market, and it is ultimately hoped to build 
up in Germany many of the small industries that have 
died through lack of tools and cheap motive force. The 
small electric motor will again make possible the develop- 
ment of the " small industry " as is already the case in 
the creation of knitted goods in the neighborhood of the 
cities of central Germany. In no country is this so well 
understood as in Germany. Side by side with the electri- 
cal industry, from the point of view of rapid develop- 
ment, may be placed the chemical industries. The same 
methods used in the universities are followed by the in- 
dustrial chemists. The Germans, in fact, have replaced 
their foremen by doctors of philosophy and have reaped 
the benefits of thorough understanding and expert in- 
vestigations. Although not so marked in their advance 
as the industries just mentioned, the other activities of 
the people of the Empire have been crowned with success. 
Every industry and every city has shared in this remark- 
able progress and prosperity. 

The Germans from the first have viewed commercial 
development as just as necessary as the industrial, for 
without a system of markets and means of reaching the 
marts of foreign lands great production is in vain. The 
foreign commerce of the Kaiser-land has been built up 
in no small degree by its emigrants. Wherever they 
have gone, loyalty to the Fatherland still remained a 
part of the heritage, and it has taken the material form 
of a demand for German products. The economic edifice 
of Teutonic production rests upon the German business 
man and workman, the scientist, and the state. The Ger- 
mans are educated and trained in the army of the Em- 
pire; from the point of view of a democracy such an in- 
stitution reduces the number of workers and places a 
heavy burden upon the producer, nevertheless the train- 
ing received by the German youth while in the army has 



78 MODERN INDUSTRIALISM 

given them a realization of national interest, of the value 
of discipline, and the purpose of production. Coupled 
with the statement just made, the recognition that agri- 
culture, industry and commerce are sciences and deserve 
careful study, it is small wonder that the facilities offered 
for the education of men along these lines are fully ap- 
preciated and used. There is in Germany a full realiza- 
tion of the greatness of the industrial contest. Every 
subject is to know this and through the schools to be pre- 
pared to take an intelligent part in it. They have, in fact, 
learned that the nation with the best and most skilled men 
will have the most advanced tools, best and finest fabrics, 
most effective arms, and in consequence the best adapted 
and most powerful organization. 

Within the last ten years numerous schools of indus- 
try and commerce have been established to accomplish 
these results. Through the medium of these institutions 
the methods and the discoveries of the savants are to 
be carried to the people. In addition to numerous in- 
dustrial schools in which young people are taught trades 
and arts, there are 365 commercial schools with an at- 
tendance of over thirty-one thousand. Through the in- 
dustrial schools thousands of students are given the most 
advanced training in the technique of production, the ulti- 
mate aim being to give the working population a tech- 
nical education in some trade. The Governments of the 
different States have come to look upon this form of edu- 
cation as a means not only of accelerating the extraor- 
dinary development of German industry but also of sus- 
taining the small industry in its contest against concen- 
tration. There is also a political phase to the movement, 
the socialistic danger may be removed by education, be- 
cause the discontent of men does not concern itself about 
differences of riches. Patriotic spirit developed in well- 
trained workmen will do much to remove opposition to 
the state. It has been the purpose of the Germans to 



THE RISE OF GERMANY 79 

replace the old system of apprenticeship by a new train- 
ing that would prepare the worker for the division of 
labor and specialization now existing in the greater in- 
dustry. 

In no sense has the commercial side of the modern 
industrial organization been neglected in the German 
scheme of education. Many of the schools are estab- 
lished by municipalities and chambers of commerce in 
the different cities to teach what may be called commer- 
cial subjects. In these schools commerce is treated as a 
science, the resources of other lands, their trade facili- 
ties and language, are carefully studied, and after gradu- 
ation the student enters the house of a German firm or 
goes to foreign countries and enters the commercial houses 
learning their methods. When he returns to his own 
land he has a valuable fund of knowledge that is of great 
assistance to the producers of products for foreign mar- 
kets. Through this system Germany has changed the 
manner and method of shipment to suit the purchaser, 
with great benefit to her commerce. With well-trained 
Avorkers and a corps of expert salesmen the Fatherland 
is well on the way to supremacy in the world's trade. 

From the beginning the Government has taken a 
prominent part in the development of the Empire; un- 
hampered by discussions of the functions of the State the 
German motto has been accepted from the beginning, 
" Absolute liberty of transaction is inconceivable with 
stability of commercial relations." With the function 
of the state fully accepted, it was only a matter of course 
that the fundamental policy of the Government should 
become that of state intervention. Various schemes have 
been proposed,* adopted and carried through, that had as 
their object the economic and social prosperity of the 
people. Many of these, such as the compulsory insurance 
of life and accidents, have hitherto had no precedents in 
the legislation of any country. The powers granted to 



80 MODERN INDUSTRIALISM 

the Imperial Government are very extensive and include 
the regulation of commerce, revision of the coinage, es- 
tablishment of a currency and banks, the control of rail- 
roads and canals, the right to regulate the postal system 
and to pass tariff laws. Although the powers of the cen- 
tral government are great, much advantage has come to 
the people of the Empire by its judicious exercise. 

The same wise application of law to industry so often 
noticed in the history of the Empire is seen in the con- 
trol of trade combinations. These have developed along 
three lines, the organization of selling agreements, in 
which the price is fixed; sale syndicates, the members 
of which pool orders, sales and profits; and the combina- 
tions that control stocks, bonds and organization. 

During the national transition from agriculture to 
manufacturing, many trade syndicates have come into ex- 
istence until to-day practically every important branch of 
industry is controlled by some such form of organization. 
These combinations have never been permitted to work 
against the common interest. Although the people are 
not hostile, and accept the combination as a form of or- 
ganization that will give the nation as a producing agency 
greater efficiency, nevertheless the syndicates have been 
managed conservatively. This, however, is undoubtedly 
partly due to the position taken by the Government. Be- 
fore the organizations had reached great power and were 
in a position to defy the Government a very comprehen- 
sive corporation law was passed, requiring publicity of 
accounts and official examination of records and books 
wherever necessary. What was still more to the point, 
officers and directors are held responsible for any breach 
of trust that may occur in the management of their com- 
panies. In this way what might have been a menace to 
the industry of the nation is looked upon as a very efficient 
agent. 

The great turning-point in German history is the triad 



THE RISE OF GERMANY 81 

of wars during the six-year period from 1864 to 1870. 
In that time Austria and Prussia seized ITolstein, quar- 
reled over the division of the spoils and fought the Seven 
Weeks War of 1866 for sovereignty; the period ends with 
the Franco-Prussian War of 1870. As soon as these great 
contests were over and unified Germany assured, the Gov- 
ernment set about the alteration of the money and bank- 
ing system. Economically speaking the German indus- 
trial organization was very incomplete, machines and 
machine production were limited, prices were high and 
the means of communication inadequate. The transfer of 
vast sums of money from France to Germany together 
with the incentive to enterprise due to the German vic- 
tories brought on a period of speculation that by 1876 
resulted in an anarchy of industry, well marked by the 
large emigration of people from German territory. Two 
years later the Government established a well-developed 
policy of high tariffs and at the same time began the 
purchase of the railroads. The tariff particularly ap- 
plied to agricultural products and against those of the 
New World. Whether due to the tariff or to favorable 
railroad rates or both, at any rate a solidarity of com- 
mercial interest dates from the year when the new pol- 
icy was inaugurated. When the Germans reached the 
point of an extensive international commerce the tariff 
was modified by a series of commercial treaties that were 
negotiated with great skill by the German statesmen, re- 
sulting in many advantages to that nation. The industry 
of Germany has grown with leaps and bounds and the 
honor of this advance may be shared between the thorough- 
going, painstaking people and the wise and energetic Gov- 
ernment. 

The great national State known to the world as the 

German Empire has passed through a stormy history to 

reach her present place in the rank of nations. In 1804 

Germany was completely disintegrated; with the consent 

7 



82 MODEEN INDUSTRIALISM 

of the powers a federation was created in 1815 binding 
together the scattered fragments of former Teutonic 
states. The thirty years of peace following the Congress 
of Carlsbad, held in 1814, were filled by a gradual reac- 
tion against the bonds of federation, and instead of the 
expected union came the division of the States- into two 
hostile groups. The hostility was somewhat allayed by 
the formation in 1833 of a Zollverein. The results were 
economic and political, bringing greater commercial de- 
velopment and a closer feeling of unity among the states 
party to the agreement. The feelings of the people 
against the Governments were fully manifested in the 
Revolution of 1848, and throughout Germany after that 
event there was a wider liberality of government than 
ever before. The years from 1848-62 were taken up 
with the organization and dissolution of the Prussian Na- 
tional Assembly, Schleswig-Holstein question, and war 
with Denmark. In 1862 Count von Bismarck began his 
work as the chief minister of the Prussian king, and with 
far-sighted vision started the process of German unifi- 
cation. 

The first step in this problem was to deprive Austria 
of all interest in German territory. To do this required 
war, which was resorted to without great hesitation. 
Prussia, with well-built railroads and a thoroughly or- 
ganized military system, within fourteen days after the 
declaration of war had 500,000 men under arms on the 
Austrian frontier. After a period of seven weeks Aus- 
tria was conquered and the treaty of Prague gave the 
results of victory to Prussia. " This treaty marked for 
Prussia the beginning of a larger work, which because 
of its greatness demanded a larger time and a second 
victory for its completion. It was no part of the plan 
of Bismarck to stop when Prussian destiny was half ful- 
filled, to establish a national government for but half the 
German people, to leave the South German States outside 



THE RISE OF GERMANY 83 

the Confederation, although he knew that in continuing 
the task he was bound to raise an issue with France, 
which only a resort to arms could settle. ' ' * 

Under the treaty two confederations of German States 
might be formed whose future relations were to be set- 
tled by mutual negotiations. On July 1, 1868, the North 
German Confederation was created. It was not a league, 
nor a federation of states, but a federal state disguised 
under the name of confederation, in which Prussia was 
the guiding power. The conditions of peace left it open 
to the Southern States to choose what relationship they 
would form with the Northern Confederation. The first 
step to bring the two groups together was taken when 
Prussia called a customs parliament in 1868. The union 
thus created was further sealed by the unity of military 
systems in 1870, hastened by Napoleon's intrigues for 
German territory. By 1871 the conflict with France was 
over and German unity an accomplished fact. 

" Thus, after Germany's traditional foe, who was bent 
upon destroying the integrity of the German nation, had 
been defeated and the people of Germany were once more 
united, it was natural that they should connect in thought 
their present achievements with the glories of the past, 
and indulge in the illusion that the imperial office of 
Charles the Great and the Empire of Otto 1. had been 
revived. Intense as the enthusiasm of the people was 
over the results of the war, they hailed with equal de- 
light the assurance of a peaceful policy, which the first 
proclamation of the new German Emperor gave to his 
people." f 

Before the capture of Paris by the Germans, the union 
between the North and South Confederacies had been 
sealed and all was ready for the establishment of a con- 
stitution. In the spring of 1871 the Imperial Diet met 

* Andrews, History of Modern Europe, vol. ii, p. 252. 
f Lalor, Cyclopaedia of Political Economy. Germany. 



84 MODERN INDUSTRIALISM 

at Berlin and accepted a constitution based upon the 
compact of the North German Union which, when am- 
plified and changed to meet the new political situation, 
gave little power to the people, but much to the Govern- 
ment. A federal state was now established on a national 
foundation with Prussia as the dominating power in the 
new Empire. 

The war had brought out of a mystical people wonder- 
ful powers of organization; they had submitted themselves 
to discipline and learned the power of mass in the few 
years from 1860-70. The society consisted of many classes 
separated by almost impassable barriers. The landhold- 
ers of Prussia desired a system of government, military 
in character; the working classes tended in the direction 
of an industrial state, socialistic in form. Between these 
two stand the commercial classes and the Jews, never- 
theless national unity is assured, despite the serious prob- 
lems of a social nature. Prior to the war the people were 
stationary in their habits and contented with their lot, 
but all of this was changed, their imaginations were stimu- 
lated and they became discontented with the old order. 
Unification of the Empire led to the ordering of legisla- 
tion and the breaking down of the many petty restric- 
tions formerly existing between states, cities, towns and 
villages. Immediate prosperity resulted and Germany 
entered upon what proved to be a short enjoyment of the 
fruits of victory. 

Germany was absorbed from 1866-71 in the struggle 
for unity and the consolidation and protection of her mili- 
tary position in Europe. Her victories set her free to 
develop her industries, increase her powers of produc- 
tion, and to enter the markets of the world. The Em- 
peror early recognized the situation when he said, " Ger- 
many's future is on the seas." To him it was necessary 
that Germany should get her products into foreign lands. 
The first step to this wider development was to open up 



THE RISE OF GERMANY 85 

new fields to German colonization and industry; this could 
be done by making commercial treaties with her com- 
petitors. Her colonial policy began in 1884 and has been 
pushed with amazing rapidity, resulting in a wide con- 
trol of African lands by the Empire. It is feared that 
the ambition for colonial greatness came too late. Land 
where white men can live has been taken up by other 
nations and her colonies are likely to become trading 
stations. The career of Germany will, in consequence, 
be commercial in character rather than colonial. By her 
superior methods and the wide knowledge of her mer- 
chants, Germany in many places has seized upon the 
world's -trade and taken a large share of it for herself. 

The internal peace of Germany is menaced by the 
socialist movement. The conflict of the churches against 
the German Government has taught the authorities to 
grant concessions to wide movements of discontent in the 
hope of allaying distrust. In consequence a remarkable 
series of laws has been established in Germany to meet 
some of the burdens of the poor. These laws have taken 
the form of workingmen's insurance; protection against 
illness and old age. It was hoped that under a system 
of protection it might be possible to relieve the State 
from dependence upon the people for revenue, but the 
heavy expenses of the industrial insurance together with 
the burdens of the military and naval establishments have 
made the State doubly anxious to secure other sources of 
income. Socialism itself has in a measure made this pos- 
sible by opening the way to government interference and 
ownership of industrial affairs. The power of the State 
has in a large degree come to supplant the efforts of the 
individuals and to systematize and lead German effort. 

When the future of the German Empire is considered, 
present conditions are only indications of what it will be. 
The administration of government in Germany is abso- 
lutely honest, every penny finds its way into the coffers 



86 ^ MODERN INDUSTRIALISM 

of the state. A steady rise in the wealth of the people 
and the commerce of the land is noticeable in the last 
twenty-five years and the expenses of the army and navy 
do not, in consequence, bear an overwhelming proportion 
to the income of the state. Germany has a patriotic, 
well-trained and skilful people, patient and disciplined. 
These are the necessities of industrial greatness. Nor is 
she likely to be limited in territory; it is more than pos- 
sible that European States now disturbed by internal diffi- 
culties may be absorbed in the next quarter of a century 
by the German Empire. Then industrial and intellectual 
greatness will be fully accompanied by territorial power. 



PART II 
INDUSTRY 



CHAPTER I 

EXTRACTIVE INDUSTRIES 

For four chapters the reader has pursued the for- 
tunes of three great commercial nations in their struggles 
to rise in the scale of wealth production. Each of them 
has attained the dignity of a world State, and now com- 
petes in the cosmopolitan markets to place the products 
whose existence in such great quantities is due to its com- 
pleted national organization. All of these nations possess a 
factory system, well equipped transportation facilities, 
high specialization of labor and a thorough knowledge of 
resources. A phrase has been coined and accepted as em- 
bodying their material progress. That phrase already 
familiar may again be mentioned in the opening of this 
second part as it was in the first. It is " modern indus- 
trialism.'' When stripped of its political and ethical sig- 
nificance it may be reduced to the still more comprehen- 
sive word "industry." 

Men have come to include under this term all labors 
which contribute directly or indirectly to satisfy wants. 
Industry is human labor which in the thoroughly civil- 
ized state becomes an essentially progressive phenome- 
non. Beginning in a crude society it rises gradually to 
the greatness of organization; never advancing equally 
in different places it shows great contrasts of develop- 
ment. The first industry to which man devotes himself 
after the chase is agriculture. ' When there is a surplus 



90 MODERN INDUSTRIALISM 

of field labor and some civilization manufacturing appears 
as a distinct form of industrial effort. Later commerce 
develops, transportation facilities are created and the 
mechanism of exchange improved. 

Industries are grouped under extractive, transporting, 
manufacturing and commercial activities. Using this 
enumeration as the basis of the chapters offered in Part 
II, further delay in sketching agriculture, mining, fishing 
and, lumbering may be avoided by passing at once to the 
presentation of the prominent features of the extractive 
industries. 

It may be declared by way of a text that the natural 
resources of a nation are the real basis of its commercial 
and manufacturing greatness. The early discovery and 
use of such resources gives the nation a great advantage, 
but the differentiation of extraction, transportation and 
manufacturing as distinct forms of production is a process 
replete with difficulty and demanding long periods of 
time. The causes of this enlargement and specialization 
are found in the progress of the arts, the increase of wealth 
and the growth of population in an advancing state of 
civilization. 

Without going into the history of industry a brief 
presentation of some phases of agriculture, mining, fish- 
ing and lumbering in the three great nations that have 
been chosen to represent industrial growth will bring the 
reader into a closer appreciation of the complex organiza- 
tion of modern industry and prepare him for the difficul- 
ties with which the state is confronted in its regulation. 
In view of the fact that agriculture has had a more 
varied growth in the United States than in England or 
Germany the natural beginning in the description should 
be made in this State. 

This diversity has been due to climate and soil, char- 
acter of institutions and facilities in reaching the market. 
The beginning of agriculture in the United States was in- 



EXTRACTIVE INDUSTRIES 91 

deed meager. With the exception of a few grapes, grasses 
and foliage plants there were no native economic plants. 
Every crop now grown on a commercial scale was intro- 
duced from foreign countries. In contrast the agriculture 
of to-day is marked by a diversification of crops and a 
wide development of markets. Through the agency of a 
better monetary system, transportation and wide-spread 
manufacturing, the markets have been enlarged, and in 
turn, acreage and cultivation. New methods have been 
introduced, the old continuous cropping is largely a thing 
of the past, and in its place there now appear live-stock 
raising and fertilizing of the soil. In this kind of farm- 
ing the principle of give and return has been fully estab- 
lished. The profits of the farmer come largely from the 
sale of cattle and not from the marketing of corn, for the 
latter is used as feed and returned as a fertilizer to the 
ground, completing the round of give and return. 

The movement of agriculture in the United States 
has been from a cereal to a live-stock basis, thereby forc- 
ing the decline of the ranch system of raising cattle and 
tending to throw the land used as ranges into the area 
of cultivation. In certain parts of the country the culti- 
vation of the soil is not warranted because of its low 
producing power; where this is the case the movement 
has been an opposite one, from an agricultural regime to 
a ranch system. The farmers who had moved into the 
grass region were compelled to retire on account of the 
failure of crops and their abandoned farms are now rapid- 
ly passing into the hands of the rancher. Nevertheless 
live-stock farming, as it is now coming to be called, yields 
a number of results over and above the old ranch system. 
The first of these is the development of the farm system 
of rearing and feeding live stock, which has brought about 
a marked improvement in the breeds of farm animals. 
A second is found in the appearance of dairying as an 
industry. This result, however, is partly due to the rapid 



92 MODERN INDUSTRIALISM 

growth of cities and the presence of transportation facil- 
ities that carry the product quickly and easily to the cen- 
ters of population. Thus dairying becomes a specialty 
instead of an incident to farming. In this growth the 
creameries and cheese factories have found their way into 
new territory as cooperative concerns. The discovery of 
the Babcock test and the patenting of a process to pre- 
serve milk have so modified the dairy business that larger 
and larger numbers of individuals and business organiza- 
tions are going into it. It has in fact been carried to the 
point of a factory system. 

Agriculture has made wonderful advances since the 
colonial days. Then the hoe and wooden plow were used 
as the chief instruments of cultivation. The harrow was 
not introduced until the year 1800 and the reaper did 
not make its appearance until the middle of the century. 
What is known as the new era in agriculture did not be- 
gin until after the Civil War, when the use of machinery 
and the application of scientific methods were entered 
upon in real earnest.* 

Railroad building and an enlargement of the com- 
mercial demand forced a wider variety of crops and a 
better system of crop rotation. This tendency toward 
diversification was emphasized by the low prices of cereals 
and live stock in 1873. Since then the same influence 
at different times has compelled a varied farming, as 
notably in 1893-96. In the South the decline in cotton 
quotations brought a change in agriculture stimulating 
trucking and tobacco growing; it was a movement, how- 
ever, that will be materially checked by the high prices 
of cotton in 1903. The lands of the East, less fertile 
than those of the West, were brought into sharp compe- 
tition with Western lands by the national land policy, but 
owing to the raising of one cereal on the prairie farms in- 

* Department of Agriculture Year Book, 1899, Progress of Agriculture. 
(Report United States Industrial Commission, vol. xix, pp. 150-160.) 



EXTRACTIVE INDUSTRIES 93 

tensive agriculture on the less fertile lands was postponed 
for fifty years. 

Although such wide-spread occupancy of land tended 
to check the progress toward an intensive agriculture, 
nevertheless it was the cause of a very extensive adoption 
of farm machinery in the cultivation and harvesting of 
crops on large tracts of land. This movement is by no 
means at its zenith, for Dr. Richard Gatling announced, 
just before his death, a motor plow that will revolutionize 
agriculture on the large farms of the West. The plow 
is to be driven by a gasoline motor of sufficient power 
to propel the machine with the shares at any depth up 
to twelve inches. It is not only to plow but to harrow, 
roll and seed the ground at the same time, thus saving 
one-fourth the cost of planting. This tendency toward 
the extensive use of machinery has been further stimu- 
lated by the difficulty the farmer has had in getting 
labor. 

While machinery has been widely used the productive 
area of farms has everywhere increased in proportion to 
the improved area, which is an indication of the power 
of the land to grow larger crops and supply greater popu- 
lations if properly cultivated. In 1850, the farms of the 
United States supplied the population with food and raw 
materials for clothing and left a small surplus for export. 
Since then the crop-producing area has increased faster 
than the population with the result that there has been 
a great surplus and an enormous exportation of agricul- 
tural products. With the improved methods of cultiva- 
tion and the occupation of the more fertile soils there has 
been an increase in the number of farms. In the period 
1870-90 the average size of farms declined, indicating 
the gradual disappearance of the " bonanza farms." Since 
the latter date, however, there has been some increase in 
size. This increase or decrease can be accounted for by 
the adjustment of agricultural operations of each locality 



94 MODERN INDUSTRIALISM 

to the branches of husbandry to which it is best suited. 
In fact, so universal is this tendency that it takes the na- 
ture of a law which may be stated in this way: farms tend 
to approximate that area from which the farmer possessing 
an average amount of capital can get the largest return. 
This is a verification of the statement sometimes made 
that the problem of the extractive industries is to secure 
the most rapid development of resources with the least 
expenditure of human labor. 

While the United States is an evidence of a country 
in which agriculture has developed naturally, the condi- 
tion of English agriculture furnishes an excellent example 
of the subordination of an important extractive industry, 
and the results that are likely to come out of an over- 
excess of zeal for the stimulation of manufacturing and 
commerce. It is stated that there are five times as many 
workers in manufacturing as there are tillers of the soil, 
nevertheless it is more than likely that the agricultural, 
industries create more wealth than any one group of in- 
dustries. The English farmer possesses great home mar- 
kets, but he is hampered by high rents, large and discrim- 
inating transportation charges, the heavy cost of fertil- 
izers and old leases that keep him at work in the old 
agriculture. The nation, however, has materially bene- 
fited by the low prices of food products, but the farmer, 
landlord and agricultural laborer have borne the burden 
of the cost. The truth is that the competition of foreign 
lands has placed the farmer of England under a heavy 
handicap and brought about a material change in the agri- 
culture of Great Britain which almost amounts to a revo- 
lution. 

The movement has been from grain acreage to pasture 
land. More than half of the cultivable land is under the 
plow. The foreign competition of more fertile lands has 
placed agricultural products on the English market and 
forced the English farmer to meet the prices. This he 






EXTRACTIVE INDUSTRIES 95 

has striven to do by reducing the labor cost of production, 
but by degrees he has been forced to the wall, seeing each 
year a considerable reduction in his working capital. The 
political policy of the nation has in no way been a help 
to him. In the United States the farmer is shown how to 
use the most advanced ways through the agency of the 
experimental stations; in the establishment of irrigation 
he is stimulated to open new lands, while the rural de- 
livery of mail tends to make his occupation more attract- 
ive. In Germany a tariff protects his products from for- 
eign competition; but England does none of these things, 
and as a consequence her fundamental industry, heavily 
burdened by taxation, the lack of scientific culture, high 
rents, discriminating freight rates and unskilled labor, is 
on the road to a complete reconstruction. 

One writer acknowledges this movement in the fullest 
sense. He says : " Broadly speaking, the agricultural fu- 
ture of the country depends on grass and market gardens 
on a large scale, especially the production of potatoes; 
and the grass is very much the more important of the 
two, but it should not be used for the production of cheese 
and butter. The use of machinery, the free import of 
wheat, social advantages and other causes are drawing 
all our population into the towns; and the future of the 
whole race depends on the success with which we face 
the question of providing the enormous infant population 
of our huge cities with plentiful supplies of good milk 
at a price within the reach of all, even of the very 
poorest." 

The absorption of arable lands for pasture, the im- 
provements in breeding animals and the transfer of large 
numbers of the population to urban centers indicate that 
the movement is on. England, nevertheless, as any na- 
tion must that does not produce its food supply, keeps 
open an access to animal and vegetable food. This means 
and demands a navy large and powerful, but at the same 



96 MODERN INDUSTRIALISM 

time the constant decline of agriculture dries up the 
source of private and public revenue that would go a long 
way toward meeting the public expense. This is a suffi- 
cient proof of the statement that agriculture is a funda- 
mental industry which can not be eliminated from na- 
tional life without dangerous results. 

In Germany less than half the population live on 
farms; the nation once agricultural has become within 
recent years manufacturing. Although the tendency is 
toward machine production, nevertheless all the available 
land is used for tillage or pasture; less than six per cent 
is unproductive although twenty-five per cent is devoted 
to forestry. Like England, Germany can not raise food- 
stuffs sufficient to meet the wants of her people. The 
agricultural industry has been crippled by the moving 
of the farmers to the towns and cities and the unwilling- 
ness of the youth to return to rural occupations after their 
military service. The unusual demand for labor in the 
industrial centers has increased the wages of farm labor- 
ers and raised the cost of production so that there is a 
wider use of machinery than in past years. The same 
evolution may take place in German agriculture as did 
in the experience of the United States. In the last-named 
country the high cost of labor stimulated at the outset the 
use of machinery, so that progress has been made despite 
the scarcity of workers and the high labor cost. What 
seems at first a calamity may prove a decided advantage. 

Methods of cultivating in Germany have materially 
improved during the past few years. Through the means 
of a more scientific agriculture, skilful drainage, rota- 
tion of crops, improvement of seed and freedom from 
wars the production per acre has greatly increased. The 
important question in German agriculture is how much 
higher can the returns be pushed without increasing cost. 
The population has grown rapidly, demanding larger 
amounts of food products, but a large proportion of the 



EXTRACTIVE INDUSTRIES 97 

increased production lias been diverted from food uses 
to consumption in manufacture. This usage of acreage 
is seen in the distilling of alcohol from potatoes, the brew- 
ing of beer from barley and the manufacture of sugar 
from beets. Thus the food-producing power of the nation 
has failed to keep up with the rapid growth of population.* 
Fundamentally German agriculture is based on the 
village system of culture. About a rough division of labor 
is built a social fabric that attempts to meet its own 
wants. The village smith makes the tools and repairs, 
the tailor creates the clothing, the apothecary provides 
the drugs and medicines, and so on down through the 
lists. The artisans receive their pay in kind and a gen- 
eral barter system exists by which the work and labor 
of the members of the community are set off against 
products they wish to secure. Only a limited money sys- 
tem prevails and that in the exchange of commodities 
between groups. The introduction of machinery of any 
kind destroys the equilibrium existing in the village 
groups and when used is not pushed to its greatest effi- 
ciency. As long as the members of the group remain 
in the village they demand some part in the work and 
consequently the machinery, when introduced, is oper- 
ated at considerable cost because of the presence of too 
many attendants. The movement of population referred 
to above will remedy this difficulty and also force the 
newer agriculture onto a different basis than the inade- 
quate one of village culture. Without the machine basis 
Germany can not meet the demands made upon her agri- 
culture by the population. In time the many small farms 
in Germany will be grouped, for the use of machinery 
demands an extended area to make the operation of ma- 
chines a profitable venture. This, however, does not mean 
a revolution in land tenure or the disappearance of the 
peasant owner, but rather the extension of the coopera- 
* Consular Reports, June, 1900, p. 162. 



98 MODERN INDUSTRIALISM 

tive principle to agriculture in the ownership of plows, 
drills and threshing machines. 

It has come to be a commonplace saying that the for- 
est possessions of a nation form an indispensable basis 
of material prosperity. The tree furnishes ready at hand 
a material that has the greatest variety of applications 
to the meeting of the wants of man. It is, in fact, as 
one writer has said, " the ready cash of nature's bountiful 
provision for our future." Kegardless of these facts men 
have destroyed ruthlessly these products of nature, and 
by their act have introduced the serious problem of water 
and lumber supplies and forced by a hundred years the 
question of forest preserves and careful lumbering. 

The importance of this natural resource is well indi- 
cated in a paragraph recently published in which is set 
forth the value of the lumber product in the United 
States. " If," says the writer, " to the value of our total 
mining product be added the value of stone quarries and 
petroleum and this sum be increased by the estimated 
value of all the steamboats, sailing vessels, canal-boats, 
flat-boats, and barges plying in American waters and be- 
longing to citizens of the United States, it will still be 
less than the value of the forest products by a sum suffi- 
cient to purchase at cost of construction all the canals, 
buy up at par all the stock of the telegraph companies, 
pay their bonded debts, and construct and equip all the 
telephone lines. The value of the annual forest products 
exceeds the gross income of all the railroad and transporta- 
tion companies. It would suffice to pay the indebtedness 
of all the States, if we leave out New York and Penn- 
sylvania, including that of all counties, townships, school 
districts, and cities within those States (1880), and it would 
more than wipe out the public debt of the United States. 
In fact, ranking manufactures of all kinds and agriculture 
as respectively first and second in importance, as far as 
production of value goes, the forest product occupies third 




LofC. 



100 MODERN INDUSTRIALISM 

place. This was the case in 1880." In 1900 the product 
of the lumber industries reached the enormous sum of 
$1,030,000,000. 

While the timber industry assumes enormous propor- 
tion in the United States, in Germany the product does 
not supply her wants, and in Great Britain the native 
woods have been so far depleted as to count for little in 
the lumber market. The German forests cover about one- 
fourth the area of the Empire, the largest portion being 
located in the highlands of the south. The governments 
of the different states maintain the strictest supervision 
over these reservations and prevent the depletion by scien- 
tific forestry methods. The supply, however, is not suffi- 
cient, as many timber products, such as oak staves and 
black walnut, are imported. England is compelled to rely 
for timber upon the United States, Sweden, Russia, Can- 
ada, Germany, and the African states; she in fact im- 
ports nearly all of the wood material for the manufac- 
ture of wagons, paper, furniture and buildings. The mag- 
nificent shipping facilities possessed by the British people 
in the harbors and merchant marine relieve in some meas- 
ure the seriousness of their lumber deficiency. 

In this industry there are three distinct divisions of 
operation seen in the logging operations, the saw-mill, 
and the sash, door and finishing factories. The first divis- 
ion of the work is carried on in the forests, the second at 
some railroad center and the third near or within easy 
distance of a large population. Logging has for its raw 
material the standing timber and for the finished prod- 
ucts logs cut into regular lengths ; the saw-mill receives 
these as raw material and creates lumber in various sizes 
as the finished product, and the finishing factories take 
the lumber and produce sash and doors, flooring, smooth 
boards, and moldings ready for the inside work of houses 
and buildings. As the last division of the industry brings 
us into the field of manufacturing we shall confine the 



EXTRACTIVE INDUSTRIES 101 

remaining comments to the logging and saw-mill divisions 
of lumbering. 

The essential element in the lumbering industry is the 
ownership or control of timber lands. These may be ac- 
quired in the following ways: first, by purchase from 
owners, either of the timber alone, or of both timber and 
land; second, by securing homesteaders to make claims 
under the laws of the United States; third, by pur- 
chase of timber script issued to the dispossessed owners 
under the forestry reservation acts. Under the third 
method the owner of the script may select such timber 
lands as are not reserved. Fourth, they may be acquired 
by lease from the individual owner or the State. When 
the operations upon these lands shall be carried on de- 
pends upon the nature of the climate. In the New 
England and lake States, lumbering is prosecuted in the 
winter time, for the snow furnishes an easy means of 
transportation. The trees are felled, the trunks cut into 
logs of different lengths and moved on various kinds of 
roads by animals, stationary engines and cables and in 
some instances by railroads. So long as possible the 
streams are used as carriers which transport on their 
surface millions of feet of logs to their destination near 
some center of population. Boom companies are early 
organized in the lumber industry to guide the logs on 
their way to the mills, and the State is soon called upon 
to adjust the matter of measurement and sales between 
the logging companies and the mills. Thus at various 
points in the course of the stream the logs are measured, 
scaled and recorded for the purpose of conducting the 
business on a satisfactory commercial basis. 

When the timber in the neighborhood of the streams 
is exhausted the logging companies are compelled to re- 
sort to other methods of transportation than those fur- 
nished by nature. Many efforts are made to use the 
tributaries of the carrying streams by damming them in 



102 MODERN INDUSTRIALISM 

the hope that enough water will be secured to float the 
logs to the greater streams. Even these expedients fail 
in time to furnish the necessary transportation and resort 
is made to the railroad. Crude and hastily constructed 
railroads are built to haul the logs to a stream, or to a 
branch or main line of a railroad. When the logging 
industry reaches this stage cranes and machinery for 
handling the logs on cars and platforms are necessary. 
As the exhaustion of the timber supply goes on the cost 
of hauling increases by reason of the greater distances 
from mill and town. On the Pacific coast, where lum- 
bering is prosecuted throughout the year and where the 
size of the timber requires better appliances, the organ- 
ization of logging is carried to a still greater degree of 
efficiency. 

It is in the mills that the real productive power of 
the lumber industry can be seen to the best advantage. 
The logs are drawn by a chain system from the water 
to the mill above. There a machine called a " nigger " 
twists and turns them with the greatest ease so that the 
logs may be fastened to the carriage and cut to. the best 
advantage. When squared, the timber is passed to the 
band or gang saws and makes its appearance later as 
boards, scantling, joist or smaller materials. By an auto- 
matic device the lumber is carried into the yards and 
piled up to dry. Simple as this description appears the 
mills are highly organized and often abandoned if not 
well situated or properly equipped. Running continu- 
ously night and day for a period of six or eight months 
the output is enormous and will amount in the best mills 
to eight hundred thousand feet of lumber in twenty-four 
hours. The product is placed in the hands of consumers 
through wholesale and retail yards, often established by 
the lumber companies themselves as a means of making 
the producers' and sellers' profits. 

The future of the lumber industry in any land must 



104 MODERN INDUSTRIALISM 

depend upon the preservation of the forest areas. It is 
true that the lumberman is a member of the army of 
pioneers, for he clears the way for the agriculturist who 
is to come later. In this early stage the cutting of trees 
is ruthlessly done and no thought is given to the future. 
Later when the agriculturist attempts to place the stump- 
age under plow the demand for wood products begins to 
increase, and the necessity for economy in the forest in- 
heritance becomes more and more apparent. In two ways 
then a limit is placed upon forest growth, one by the 
extended cutting of timber to meet the increasing de- 
mand, and the other by the relegation of the forest to 
the non-agricultural soils to make room for food-pro- 
ducing acreage. In every civilized land some apprecia- 
tion of the necessity of forest preservation exists. Ger- 
many now controls or directs the policy of administration 
of her forest areas. In the United States this point of view 
has made itself felt but recently on account of the rapid 
exhaustion of her vast resources. The time has come when 
the interests of individuals stand in the way of the mate- 
rial prosperity of the community, whereas tinder the sway 
of the latter profits have been the sole object of lum- 
bering, forest management proposes to leave an opening 
for private enterprise, but at the same time to economize 
the public inheritance. 

Forest management has two objects, the production 
of useful material, and the maintenance and improve- 
ment of natural conditions. To secure the first object 
the standing timber is treated as a crop from which a 
harvest is expected, while the second is seen in the effort 
to supply a cover to the soil to prevent washing of the 
soil and to retard the flow of water. The first means the 
continuance of lumbering indefinitely with the assurance 
of a regular supply of lumber and the planting of trees 
to save to the farmers of a country the thousands of dollars 
each year that are now carried down the streams in the 



EXTRACTIVE INDUSTRIES 105 

form of soil. Thus the proper preservation of the forest 
has a double result found in a regular supply of timber 
and in the benefiting of agriculture through weather and 
soil conditions. 

England was the first nation to utilize her coal and 
iron fields on a large commercial scale. She, however, 
possessed a great advantage in the nearness of her coal 
and iron fields to each other and to the seaports. The 
great coal-field of Durham and Northumberland is bi- 
sected by the estuary of the Tyne, on which are located 
the seaports which first developed the coal trade. At 
the southern end of this field are the iron deposits of 
Cleveland in the North Riding district. On the other 
side of the country is the Cumberland coal-field, which 
touches the seaports of Maryport, Workington and 
Whitehaven, and lies close to the rich hematite ores of 
South Cumberland and North Lancashire. Through the 
central and southern parts of England are coal and iron. 
In Scotland the coal-fields are near to the sea and rich 
in iron.* The chief coal bases of Germany are those of 
the Ruhe on the right bank of the Rhine, the Saar in 
Rhineland and Lorraine, the Saxony fields, and those of 
upper and lower Silesia. Iron ores are found in West- 
phalia, the Rhine province, Alsace-Lorraine, upper Sile- 
sia, Nassau, Hesse-Darmstadt, Thuringia and other parts. 
The smelting of the ore is carried on in the coal-fields, 
especially in the basin of the Ruhe, which is accessible 
to the sea-borne ores.f In the United States both iron 
ore and coal are widely distributed. As a consequence 
the chief supplies of ore are at a great distance from the 
smelting fuel, a difficulty overcome by the highly devel- 
oped system of ore transportation on the Great Lakes. 
Around the shores of Lake Superior are four districts: 
Marquette, Menominee, the Gogebic range and the Ver- 

* Chisholm, Handbook of Commercial Geography, p. 213. 
J Ibid., p. 250. 



106 



MODERN INDUSTRIALISM 



milion and Mesabe ranges. Although the Lake Superior 
district furnishes the larger portion of the ore, neverthe- 
less there are fields of some importance in eastern Penn- 
sylvania and western New Jersey, Alabama, Tennessee, 
Missouri and eastern New York. For smelting and reduc- 
tion to steel the ores are brought to the fuel in Pennsyl- 
vania, creating there a wonderful manufacturing district. 
Both in Germany and the United States the question 
of transportation becomes an important matter in the 




A modern excavating machine. 

iron industry. In Germany steel is carried to the wharves 
at Antwerp, a distance of 150 miles, for 82 cents a ton, 
but this feat is hardly comparable with the highly organ- 
ized system of ore transportation existent in America. 
There, in the Lake Superior iron-ore regions, a steam- 
shovel scoops up the ore from open pits, filling cars easily 
and rapidly at the rate of fifty an hour. The cost of 
mining varies from ten to forty cents a ton. The ore is 
then carried in the cars to the neighboring ports on the 
lakes, dumped into bunkers, and loaded into large vessels 



EXTRACTIVE INDUSTRIES 107 

of six thousand tons capacity in two or three hours. At 
the receiving ports the cargo is unloaded by machinery, 
placed on cars of great capacity, and carried to the smelt- 
ers a hundred or more miles away. 

To keep pace with the progressive growth of demand 
for the metals there has been forced a wide development of 
mining methods and engineering. As a. result, the mi- 
ning and hoisting of the ores to the surface for treatment 
have been greatly improved. The improvements have 
been particularly in the direction of excavating and cut- 
ting, better methods of hauling, handling the materials 
at the shafts and on the surface, mine drainage and trans- 
portation above ground by locomotives and cars. The 
increase in output, especially in the coal-mines, may be 
traced to the invention of the pneumatic drill and the 
undercutting-machine. Improvements of this character 
have required much larger investments of capital in the 
mining industry. In the various mines where gold, silver, 
copper and coal are mined the shafts have gone deeper 
into the earth until expensive pumps and hoisting appa- 
ratus are required to lift the water and the ores to the 
surface, adding materially to the cost of mining. These 
expenses are offset by a larger output, better ore disposi- 
tion, a higher order of mine management and the intro- 
duction of mechanical appliances wherever possible. 

A part of mining is the ore concentration and metal 
extraction. The term " concentration " is used to indi- 
cate the process by which the metal in an ore is reduced 
to smaller bulk and raised to greater purity. This result 
may be accomplished by the old-fashioned method of ham- 
mering, or by crushing the ore through the agency of 
machinery, and separating the metal from the rock sub- 
stances by water treatment under the influence of grav- 
ity. By this method many ores too poor for industrial 
purposes can be enriched to the degree of making their 
use profitable. The processes in' the concentration of 



108 



MODERN INDUSTRIALISM 



ores are, first, the washing with water, sorting, breaking 
up by crushing machines, and the sifting of the product, 
and second, the separation of the crushed particles by the 
use of water, by motion in air employing fans or by 
magnetic concentrators using endless belts, rolls or de- 
flectors. 

In the metal extraction there are two methods known 
as the furnace and the chemical. The first of these employs 




A cyanide mill at Mercer, Utah. 

heat to reduce the ores to a metal mass by roasting and 
smelting. In the case of iron the roasting in revolving 
cylinders is omitted and direct furnace treatment used 
because of the greater richness of the ores. The smelt- 
ing process is carried on in a blast furnace whose height 
is often one hundred or more feet. The furnace is fed 
at the top with ore, coke and limestone, in the general 
proportion of one and two-thirds tons of ore, less than a 



EXTRACTIVE INDUSTRIES 109 

ton of coke and half a ton of limestone to each ton of 
pig iron. Under the great heat produced by forcing hot 
blasts through the molten metal, the limestone fuses 
with the iron ore and forms a covering of slag under 
which is the pure iron. The molten iron is then run off 
into pigs and is ready for conversion into steel. The 
great process by which this is done is known by the name 
of its inventor and consists in forcing cold air through 
the pig iron reduced to a molten state, resulting in the 
burning of the carbon in the pig iron. A Bessemer con- 
verter is lined with various non-fusible substances whose 
character depends upon the composition of the pig iron. 

It is particularly in the production of gold that the 
chemical process is used for metal extraction. The one 
method of this kind that has done most for the metal- 
lurgical sciences is the cyanide process invented in 1890 
by Messrs. MacArthur and Forest, and is based upon the 
solubility of gold in weak solutions of potassium cyanide, 
from which it is subsequently obtained by precipitation 
with metallic zinc or electrolytic deposition.* The proc- 
ess is applied to large quantities of crushed rock and to 
the tailings from the stamp mills with such profitable 
results that it is worth while to mine a very low grade of 
gold-bearing rock. 

One more of the extractive industries remains for 
consideration. Upon it we depend for a large part of our 
meat diet, and for centuries the industry has furnished 
food for the Catholic countries in Europe and the Amer- 
icas. The reference is of course to the fishing industry. 
The conditions under which it is pursued divide it natu- 
rally into salt-water and fresh-water fisheries. In the main 
the salt-water fisheries are near the coasts of the cooler 
northern seas, extending from the mouth of the Dela- 
ware on the American side of the Atlantic to the Med- 
iterranean Sea on the European side. On the Pacific the 

* Report of the United States Industrial Commission, vol. xix, p. 243. 



110 MODERN INDUSTRIALISM 

fishing is conducted along the western coast of America 
from San Francisco Bay to beyond Bering Sea. Each 
nation by national agreement reserves for its own fisher- 
men the privilege of fishing inside of the three-mile limit, 
outside of this reservation the fisheries are open to the 
world. The principal products of the salt-water fisheries 
are the cod, herring, shad and salmon on the American 
coast, and the mackerel, tunny, sardine and anchovy on 
the European coast. 

The difficulties of ocean fisheries are steadily requiring 
larger numbers of men, better ships and longer voyages. 
The product has undoubtedly grown, but the cost of get- 
ting the product to the market has also increased. In the 
oyster industry the steam-dredge catches a larger product 
than the old sailing craft, but nevertheless at the possible 
expense of materially reducing the supply. Steps have 
been taken to meet this difficulty by establishing a system 
of oyster culture. The chief products of the lake fish- 
eries are white fish, trout, herring and sturgeon. The 
industry is prosecuted with considerable vigor on the 
north shore of Lake Superior. 

The fishing industry has been materially affected by 
the canning and refrigerator methods. Nearly the entire 
salmon catch is put up in tins and sold all over the world, 
while fresh fish can now be placed in the city markets 
in good condition through the use of the refrigerator, 
thus opening the inland markets to the sale of salt fish. 
Dried fish are prepared in large amounts and find a ready 
market. The fishing industry is not limited to the use of 
the catch for food alone, for in many instances the fish 
are used to make oil for dressing, tempering steel, making 
rope and compounding with other greases, while the 
refuse fish are used as a fertilizer.* 

In every industry indicated as extractive, nature plays 
an increasingly important part, forcing men to plow deep- 
* Report of the United States Industrial Commission, vol. xiii, p. 125. 



EXTRACTIVE INDUSTRIES 



111 



er and harrow oftener, to cut more and more undesirable 
timber at an increasing cost of transportation, to delve 
deeper into the earth for minerals, constantly increasing 
the expense of pumps and hoisting, and finally to build 
larger ships in order to go farther out to sea to get the 
fish of the ocean. The return from these enterprises, 
measured by the amount of product, is in relation to the 
expense of extraction a diminishing one, thus giving 




Hoisting engine. 

foundation for the economic law known as the law of 
Diminishing Returns. Through the agency of inven- 
tions or discoveries it is quite possible for an extractive 
industry to pass into the realm of an increasing return. 
In mining where the introduction of machinery has been 
very marked the finished product is undoubtedly increased 
in proportion to the cost, but the extraction of the ore from 
the earth is in most mining industries an increasing expense. 



112 MODERN INDUSTRIALISM 

A notable example of this is seen in the mining of an- 
thracite coal, the increased cost of which has led to the 
substitution of bituminous coal for manufacturing uses. 

As the resources of nature approach exhaustion the law 
becomes more and more inexorable, placing heavy bur- 
dens upon society in the securing of materials. Man 
has it in his power, however, to prevent the full weight 
of the burden from falling upon society. In a measure 
the better transportation facilities furnished by railroads 
and steamships bring distant supplies to industrial centers 
at comparative low costs. Inventions and discoveries 
creating substitutes or permitting a more extended use of 
the supplies already at hand, postpone the day of a di- 
minishing return. Likewise better methods of organiza- 
tion, more serviceable distribution of products and a 
higher stage of agriculture, tend to increase the product 
without an increase of cost. Nevertheless, the days of 
a diminished return are already present in the lumbering 
and fishing industries. It is possible in the first-men- 
tioned one to prevent waste and destruction by forestry 
methods, but even then the cost of the product must be 
greater than at present. In the fisheries the supply is 
gained by harder work and more extended voyages, but 
the immense fecundity of fish may be brought under con- 
trol and a wonderful food supply provided. Agriculture 
presents a seeming anomaly, but it is due to the primitive 
culture of the soil now followed in most countries. The 
time may come when there will be an increasing return, 
but there is always a limit in the power of a given area 
of land to produce. 

It is just this tendency toward diminishing returns 
that makes the extractive industries peculiarly susceptible 
to monopoly control. The one exception to this statement 
is agriculture, but mining and lumbering are controlled 
in more than one instance by monopoly holdings. Such 
a monopoly arises when the supply of raw material is suffi- 



EXTRACTIVE INDUSTRIES 



113 



ciently limited, especially geographically, to make possi- 
ble the control of the supply by groups of individuals. 
But even such a control through ownership hardly 
amounts to a monopoly unless assisted by transportation 
facilities. The recent troubles in the anthracite coal re- 
gions bring this very clearly to mind. Even with a re- 
stricted district and a limited area in which the entire 
national supply has been found, it was not possible to 




Landing at the top of a mine shaft. 

establish a monopoly without the aid of the railroads. 
In those natural resources scattered over a considerable 
area monopoly has not been fully realized, but the rapid 
cutting of forests and the absorption of oil-, gas- and coal- 
fields have brought such raw materials very close to a 
monopoly control through unity of interest if not of own- 
ership. The process by which control is obtained is seen 
in the absorption of the property of individual owners 



114 MODERN INDUSTRIALISM 

which results too often in the control of the supply, espe- 
cially where it is materially limited. In the United States 
such control has been obtained in the anthracite coal- 
fields and to a smaller degree in the bituminous regions. 
In lumber and mineral supplies similar methods are used, 
although the wider areas of forests and minerals make 
the control of materials more difficult. In Germany some 
attempts have been made to prevent the control of nat- 
ural resources by private individuals and in some degree 
the Government has been successful, especially in the own- 
ership of the forests and of the salt-mines. In the United 
States, now that private interests have secured control, the 
people are beginning to question the principle of excessive 
individualism and to look forward to the possible dangers 
from monopoly of natural resources. 



CHAPTEE II 



TRANSPORTATION 



Transportation is the act of carrying economic goods 
and persons from one part of an industrial society to an- 
other. In the continuance of the act,, a society is brought 
into union and soon binds its different parts together by 
the facilities provided for moving goods and passengers. 
As seen in its modern form transportation may be con- 
sidered the best example of social and industrial organ- 
ization. Through its rapid development the territorial di- 
vision of labor is encouraged which leads ultimately to cen- 
tralization and wide specialization of industry. This point 
is brought out more clearly by reference to an example 
illustrating the relation of facilities to resources. If a 
certain location affords supplies of iron and coal for the 
use of industrial man and the raw material is extracted, 
there must arise industries closely connected with the 
mining, such as the production and repairing of tools in 
the neighborhood of the mines. If fortunately coal is 
near by the place specialization becomes centralization 
and a giant industry is founded. Without transportation 
facilities, however, the vast product could not be easily 
distributed to other centers where other products are 
being created. Exchange, too, must take place before 
there can be any wide benefit derived from the operation 
of the mines. 

The movement of population from the primarv places, 

115 



116 MODERN INDUSTRIALISM 

where extraction of raw materials goes on, to the sec- 
ondary production places has been due to the cheapening 
of transportation. The importance of local natural ad- 
vantages has been decreased thereby and the artificial 
advantages of production materially gained. The 
whole tendency has been to shift the production, except 
in the case of the earliest stages of manufacture in the 
preparation of raw materials, from the resources to the 
market. 

By this movement both internal and external trade 
are encouraged, the one by securing raw material and the 
other by the furnishing of an outlet for the manufactured 
products. But transportation also influences demand by 
extending the field of the market and opening the way 
to new consumers. In the smaller cities the merchant 
may now decrease his stock because he can rely upon the 
transportation facilities to bring the goods from the great 
warehouse in the neighboring large city; he becomes by 
this method of business an agent of the larger concern 
and an outlying station for the great city. By its power 
to equalize prices between places transportation has 
materially enlarged the market. Many goods which 
might have been lost to society are rescued and brought 
to the selling place, where they are disposed of in meet- 
ing the varied wants of a people. 

In the movement of goods there may be a break 
on account of the transfer from one form of transporta- 
tion to another or because of a change" in the ownership 
of the goods. The first may be observed in the break 
in traffic where land and water transportation meet, as in 
the instance of transfer from canal to railroad, from sea- 
going vessels to lighter craft, from railroad or canal to 
ocean steamer. At such points where breaks in cargo 
occur, there soon gathers a population busily engaged in 
the transfer of the goods and ownership; as the business 
grows storage docks, switch-yards, elevators, warehouses 



TRANSPORTATION 117 

and specialized groups of labor are necessary. Around 
about these soon appear other groups of population and 
secondary forms of production are established for the 
purpose of furnishing many of the supplies required to 
support the enlarged population. The great commercial 
city is however the result, not only of a break in the 
transportation, but also of a change in ownership such as 
is found in a seaport town where imports change hands 
and exports are turned over to foreign merchants. In the 
greater city there must be added to the facilities required 
in the smaller town, at the point of interruption in trans- 
portation, the personnel of commercial houses, brokerage 
and commission firms, bankers, lawyers and underwriters 
to create the great commercial center. As the perfecting 
of transportation goes on through invention and concen- 
tration of management, the tendency is to do away with 
breaks in transportation, limiting the importance of small- 
er cities and magnifying and increasing those where the 
interruption in the movement of goods is accompanied 
by a change in ownership. 

Both in England and the United States, and to a 
somewhat lesser degree in Germany, the most important 
element in the movement of goods is the railway. The 
same instrument of commerce is at once the most typical 
expression of national industrial organization and the 
best organized phase of modern industry, a feature that 
may be accounted for in some degree by the pressing 
demands for transportation facilities and the early mo- 
nopolization on the part of railway companies of the 
canals and waterways. In Germany the canal is a well- 
recognized factor in the traffic situation, and as such has 
done much for the shipper, a condition that has not 
existed in England and the United States as already 
explained.* The railroad has therefore come to be pre- 
eminent as a transportation factor in these two countries. 
* Latz, Verkehrsentwicklung in Deutschland, 1800-1900, pp. 94-107. 



118 MODERN INDUSTRIALISM 

In Europe the railway has followed trade, in America 
it has preceded commerce ; this has been due to the land- 
grant system and extensive encouragement given to its 
construction and operation. 

The railway furnishes a magnificent example of an 
extreme form of corporate activity ; in its organization it 
differs materially from other forms of business, requir- 
ing a large permanent investment for a narrowly defined 
purpose which once invested must remain.* Locomotives 
are always locomotives, and when worn out they find 
their way to the scrap-heap. If unhappily the business 
of railway operation does not pay, the owners can not 
contract their capital, for it is in a form that can be used 
for one purpose only, that of transportation. On the 
other hand as a usual thing the railroad has a monopoly, 
the character of which depends upon the territory, the 
resources of the country and the population. The stages 
of civilization, too, affect the transportation that will be 
provided and the amount of capital that will be put into 
rails and equipment. The development and operation of 
the railway are more wonderful than its construction. 
They are thoroughly tested in the cheap handling of 
freight and passengers, and on account of this accom- 
plishment the railway has grown from an incidental to 
a principal element in the development of markets. 

The rapid advance in transportation has been due to 
economies in operation in proportion to the work done 
and is accounted for by three things: improvement in 
track and right of way, increased efficiency of cars and 
locomotives, and the increased train-loads and larger rev- 
enues, f Even as late as 1880 only about one-third of the 
railway mileage of the country was laid with steel rails ; 
since that date their weight and size have materially in- 
creased, which has resulted in the use of larger cars and 
locomotives and the lowering of the rate per ton on ship- 

* Hadley, Railroad Transportation. 

f Report of the United States Industrial Commission, vol. xix, p. 291. 



TRANSPORTATION 119 

ments from three cents to less than one for each mile of 
carriage. A locomotive of two hundred and fifty thou- 
sand pounds is no longer considered a curiosity, though 
the drawing power of such monster machines has in- 
creased fifty per cent since so late as 1895. In a like 
measure the size and capacity of freight-cars have been 
augmented so that a car of to-day has a capacity of from 
eighty to one hundred thousand pounds. Some of the 
steel hopper-cars used in the coke and ore trades go be- 
yond the figures just mentioned. The great difficulty 
in all railroad operation is to keep cars loaded and moving 
in both directions. It is stated on eminent authority that 
freight-cars were used one hour and fifteen minutes out 
of twenty-four. It is not surprising then that the average 
train-load is comparatively low when the number and 
carrying capacity of cars are taken into consideration. 
In 1899, the average paying freight-load of a train was 
243.5 tons; on the Pennsylvania the average was much 
greater — 480 tons. Occasionally single trains have been 
known to carry as high as 2,400 tons of paying freight.* 
With great locomotives, magnificent railroads, and large 
cars of great capacity, the problem is no longer hauling 
power but management of train movement. The solution 
of this part of the problem of transportation is hampered 
by the expansive requirements of terminals and the cost 
of real estate in the large cities. 

To put this transformation even more specifically may 
not be entirely objectionable to the reader. Twenty tons 
was regarded as a big load for a locomotive in the early 
days of railroading. A notice is said to have appeared 
in one of the Philadelphia papers of an early date that 
the locomotive engine would depart " daily when the 
weather is fair with a train of passengers, on rainy days 
horses would be attached. "f In sharp contrast are the 

* Report of United States Industrial Commission, vol. xix, p. 291. 
+ New York Evening Post, January 12, 1901. 



120 MODERN INDUSTRIALISM 

one hundred thousand pound phrases used to aid in the 
description of modern transportation. In the year 1885 
the ten-wheeled compound engine was built, guaranteed 
to haul 3,600 tons of freight on a level track. A few 
years later this amount had been increased to 4,000 tons, 
and to-day a locomotive can draw a train of from 25 to 
30 cars carrying 100,000 pounds of freight to each car. 
In 1874 a freight-train on the Erie consisted of 22 cars 
drawing 106 tons of freight. In 1876 this had been in- 
creased to 38 cars and a train-load of 238 tons. But the 
car of to-day as compared with the car of a few years 
ago is stronger, larger and heavier. The steel car now 
weighing 38,200 pounds has a carrying capacity of 
110,000 pounds. It is declared that there is more ex- 
pense to earn $6.59 per train-mile with wooden cars than 
there is to earn $11 per train-mile with steel cars. To 
put it in another way, 1,000 loads carried in 100,000 
and 60,000 pound capacity cars would mean 25 trains of 
steel cars and 31 trains of wooden cars, a saving of 6 
trains and 729 tons of dead weight. Many other figures 
might be given in reference to the speed of trains and 
their carrying-power, but enough has been said to bring 
clearly into view the vast improvement in the trans- 
portation of freight by the railways. 

There are two great divisions of the transportation 
problem, management and financiering. To the first be- 
long operation and rate determination, while to the sec- 
ond cling the questions of construction, raising the funds 
and their expenditure. The object of all railroad opera- 
tion is to secure the greatest efficiency with the smallest 
expenditure of time and money; as a consequence rail- 
road managers have striven to increase the working power 
of trains — passenger and freight. This they have been 
able to do, as was shown in the previous paragraph, by 
getting better road-beds, larger locomotives and cars and 
greater terminals. All of this effort has resulted in doing 



122 MODERN INDUSTRIALISM 

more work at lower pay than in the earlier days of rail- 
road history when large charges and small loads were the 
rnle. At first railroads were operated with mixed trains 
carrying freight and passengers, to-day specialization has 
been carried to the point of trains equipped for special 
service and of tracks given over to incoming and out- 
going trains, and on some of the larger roads to special 
kinds of traffic. 

It will thus be seen that the manager of a railroad is 
not only confronted by the necessity of performing the 
service of transportation, but also by that of keeping the 
railroad property up to an efficient working standard. 
In the conduct of the first he is between the upper and 
lower grindstones of stockholder and shipper. The first 
demands a low percentage of operating expenses and the 
second requires good service at fair rates. He can not 
give service at the expense of safety, so as a natural 
result he is hemmed in by economy, safety, and cheap 
transportation; within this triangle of difficulties he must 
solve the problem. 

The railroad relies for its income upon the receipts 
from hauling freight and passengers. The various kinds 
of freight, distances hauled, amount of shipment, all com- 
plicate the problem and make rate-making one of the 
most difficult questions a railroad manager has to deal 
with. The classification of freight is an early necessity 
requiring standards of goods, weights, and distances. 
After sixty years of railroading and the repeated sug- 
gestions of the Interstate Commerce Commission classifi- 
cations are not uniform and much discrimination exists 
by means of wrong classification. A distinction, too, 
is made between competitive and local business; upon the 
second must, in the words of a well-known railroad man- 
ager, rest the cost of operating the railroad, while the 
carrying of freight at any rate above cost from competi- 
tive points increases the income of the road and reduces 



TRANSPORTATION 123 

local rates.* The continued and steady decline of freight 
rates since the Civil War gave way in 1900 to a marked 
advance which was due, oddly enough, not to direct 
changes in the tariff, but to modification of the freight 
classification^ Such a decline, however, is entirely in 
harmony with the law of increasing returns, which applies 
with unusual precision to railroads, for the total cost of 
operation increases less in proportion than the amount 
of business transacted. To put it in another way, the net 
returns increase more rapidly than the expenses of traffic. 
The science of freight-rate-making has been greatly as- 
sisted by the division of the territory in the United States 
between three committees who have jurisdiction over the 
classification. Nevertheless, the difficulties of long and 
short hauls, big and little shippers, crude and refined 
goods, car famines and plethora of cars, complicate the 
situation and materially affect the industry of a region 
through which the railroad passes. 

Pools, committee systems and agreements of various 
kinds have proven inadequate to solve the problem of 
rate-making. The solution seems to rest in some form 
of consolidation. In the earlier days of railroad opera- 
tion the purpose of combinations was to establish a system 
within a trade district, hoping by superior management 
to dominate the district. These districts were based on 
administrative considerations and did not rest upon the 
geographical relations of territory to the road. To-day 
the grouping of railways under one authority within a 
specified territory is accomplished by a " community of 
interest " sufficiently strong to dominate the traffic situa- 
tion within the territory. Through the medium of absorp- 
tion and " community of interest " great trade districts 
are coming under the control of railroad groups, and in 
all likelihood steady rates, a thing long desired by the 

* Haines, American Railway Management, p. 202. 

f United States Industrial Commission, vol. xix, p. 281. 



124 



MODERN INDUSTRIALISM 



railroads and shippers, may be secured. The unity of 
railroad interests becomes assured when competition is 
banished and an equitable and satisfactory division of the 
business takes place through the medium of " community 
of interest." 

Meantime the individual railroad struggles to increase 
its resources; two general ways are open to do this, one 
by borrowing, the other through the medium of the more 




A dredge used in gold mining. 

satisfactory method of increasing earnings. Every rail- 
road has been compelled to get capital by borrowing or 
selling stocks. The road may borrow by mortgaging the 
equipment, roadway and terminals, or through the sale 
of bonds, guaranteeing future payment to scattered indi- 
viduals, secure a loan. Shares of the capital which 
partake of the risk, and unlike the bonds are not guaran- 
teed a regular return, are sold in preferred and common 



TRANSPORTATION 125 

forms. Through the medium of loans, mortgages and sales 
of stock, the road gets together the funds necessary for 
the purchase of equipment and after that may rely to a 
very considerable degree upon the earnings for the ex- 
penses of operation. - The earnings are due in a large 
measure, about seventy per cent, to the freight traffic, 
and the remainder comes from passenger business and the 
rentals of tracks and terminals. In the expenditure of 
its funds the expenses of operation, fixed charges of in- 
terest and the payment of dividends take most, if not all, 
of the annual income. In looking over the difficulties of 
management in the operation of railways, with the eco- 
nomic, legal and financial questions involved, the duties 
appear as varied as those of the departments of the 
United States Government. As compared with the affairs 
of the United States in its first fifty years of existence 
the railroads of to-day are stupendous in capital, equip- 
ment and organization. 

The most difficult feature of modern railroad opera- 
tion is to secure satisfactory and sufficiently extensive 
terminals. The short time of car operation is no doubt 
due to the crowded condition of terminals; in fact, vessels 
have been known to refuse cargoes of coal as return loads 
because of the delay in discharging their contents at lake 
ports. It is quite within the range of possibilities to so 
limit terminals by the excessive cost of land and heavy 
taxation as to nullify much of the gain in moving freight 
on main lines now secured through large cars and heavy 
locomotives. At the points where transportation is bro- 
ken great terminals have been built regardless of expense. 
These have been constructed for the purpose of handling 
coal, storing grain and of keeping live-stock for a certain 
period. At Toledo, and other local lake points, grain 
elevators were constructed as early as 1866. The vast 
elevators erected on the Atlantic coast were built in the 
year 1865. The use of these elevators as storage places 



126 MODERN INDUSTRIALISM 

for grain has undergone almost complete revolution. For- 
merly the local dealer consigned to the large merchants 
certain amounts of grain, which were stored in the ele- 
vators by commission men and finally sold when the mar- 
ket was advantageous to purchasers. Under that system 
the grain passed through several hands >and many com- 
missions were demanded before it finally made its way 
abroad. 

But to-day all of this is changed, and the elevator 
company instead of providing a storage place for grain 




A modern elevator. 

now buys directly from the producer and sells directly 
to the foreigner. This means, of course, a more rapid 
transportation of grain and better facilities for the pro- 
ducer in the sale of his product. In 18 50-' 60 the cities 
of Chicago, St. Louis and Milwaukee were the primary 
grain-markets of the West and Northwest. Since the 
eighties the production of the Western and Northwestern 
States has increased from ten to about sixty per cent of 
the grain-crops of the country. About Chicago have been 
built great elevators, making that city with its position at 
Lake Michigan the leading primary wheat-market of the 



TRANSPORTATION 127 

world. Transportation, however, lias brought that honor 
to Minneapolis, and in view of the large flouring mills 
there she is likely to keep it. The elevators in Chicago, 
left idle by the change in the market, at once became pur- 
chasers of grain for export trade, disturbing the grain- 
commission busiifess in that city. The practise of buying 
grain by elevators is of recent growth, resulting in low 
through rates by agreement with the railroads from field 
to seaboard. The business is now done on a large scale 
without the many small dealers of other days. 

In the fall of 1901 there was presented a curious ex- 
ample of grain movement due to the influence of the eleva- 
tor men. Trains loaded with wheat passed each other on 
the roads leading to the Southwest. For Kansas to ship 
wheat to the Northwest is unique, but for the Northwest 
to send wheat to Kansas at the same time is, as said, a 
curious phenomenon. The wheat of the Northwest was 
light and below grade " No. 1," the Kansas wheat was un- 
usually heavy and above grade ; by mixing the two North- 
western wheat would pass the grade inspection. The dif- 
ference in price was sufficient to make the movement pos- 
sible, and the situation was taken advantage of by the 
elevator men of the Northwest to improve the grade of 
wheat coming into their hands. The instance just cited 
illustrates the wide knowledge of business men and the 
effect upon the movement of commodities occasioned by 
small differences in price. 

Waterways have always had a strong influence upon 
the movement of commodities. This has come to be thor- 
oughly recognized in the United States and in Germany. 
In the first country it is the natural waterways that sup- 
plement transportation, while in the second artificial 
canals compete with the railroads for a part of the traffic. 
The great lakes in America furnish an admirable means 
for the movement of freight during the open season. 
Upon these steel vessels of 5,000 tons burden move, carry- 



128 MODERN INDUSTRIALISM 

ing the heavy extracted products of the Northwest to the 
ports at the foot of the lakes, and returning with coal 
and steel rails to the harbors at the head of these inland 
seas. During a period of eight months in the year the 
lakes are open to navigation, influencing during that time 
the rates and tonnage of the railroads in«the North. The 
evidence of a vast traffic is seen in the fact that in the 
year 1901 over twenty thousand vessels carrying twenty- 
eight million tons of freight passed through the Canadian 
and American canals at the " Soo." It is the geographical 
position of the Great Lakes that gives them this com- 
manding position, connecting, as they do, the primary 
grain-markets and ore-mines of the Northwest with the 
manufacturing States of the East. On the lower lakes 
the traffic is chiefly conducted in connection with rail- 
roads, the vessel's acting as collectors and distributors of 
freight. 

Outside of the few canals in the United States con- 
necting natural waterways the function of transportation 
is almost entirely given over to the vessels on the Great 
Lakes and the railroads. Early in the history of trans- 
portation in the United States the railroads secured for 
themselves a monopoly of carrying freight and passengers 
by purchasing the canals. In Germany the canal divides 
the honors with the railroads. The early canals in that 
country connect nearly all the great rivers running 
through Prussia from south to north with the Baltic or 
North Sea. The great progress of Berlin during the last 
twenty years would have been impossible without these 
artificial waterways. Magdeburg, too, owes its promi- 
nence as the center of the beet-sugar industry to the ca- 
nals. A very different policy has been followed in the 
" Fatherland " from that in the United States. In the 
former the canals are owned and managed by the Govern- 
ment for the benefit of the people. The traffic is immense, 
the rates low, but the pecuniary advantage to the Govern- 



TRANSPORTATION 129 

merit very great. No doubt exists on the point that Ger- 
many's prosperity has been materially advanced by her 
canal system. On a number of the larger rivers in the 
United States there is a very considerable movement of 
heavy freight. From Pittsburg to New Orleans the tow- 
ing companies have a monopoly of the coal traffic and the 
rates have been reduced materially because of their com- 
petition with the railroads. About fifteen per cent of 
the cotton tonnage between St. Louis and New Orleans 
is carried by the river steamers of the Mississippi. The 
effect upon rates is very marked, the river steamers vir- 
tually determining it between St. Louis and New Orleans. 
In order to compete with St. Louis the merchants of Chi- 
cago insist upon a similar rate and get it, demoralizing 
the rate situation as far as the Great Lakes. It is also 
possible for the heavy Southern commodities to get into 
the upper Mississippi Valley at low rates by coastwise 
vessels, the New York State canals and the lakes. The 
railroads have as a usual thing been able to carry freight 
so much cheaper than the canal-boat and river steamer 
that there has been little encouragement to develop the 
waterways; nevertheless, the competition of the two has 
always been beneficial to the shipper. 

Since the beginnings of international trade ocean ship- 
ping has been an important element in the business of 
transportation. The great steel ship that to-day ren- 
ders the work of ocean carriage so efficient is scarcely 
twenty-five years old. It was not until 1885 that the 
British Admiralty accepted the triple-expansion engine 
for the men-of-war of that nation. The great steamship 
is, then, a modern machine of transportation. The im- 
portance of a nation's merchant marine becomes para- 
mount only when that nation has completed its own 
industrial organization ; when that time is reached the ne- 
cessity of entering the contest on the seas becomes more 
and more apparent. It is always in a supplementary 
10 



130 MODEKN INDUSTKIALISM 

capacity that the merchant marine of a nation must stand, 
for without material development of its own resources 
there is no basis for international trade. But once in 
full operation the surplus products created by the or- 
ganization must be exchanged with other lands. 

The three factors in the growth of a merchant marine, 
outside the existence of products to carry, are the ships, 
the ports and the sea. Very rapidly indeed has grown 
the technique of naval building; the use of steel, triple- 
and quadruple-expansion engines, twin screws, and tubu- 
lar boilers all render modern vessels things of power and 
great carrying capacity. There is, however, a limit to 
speed, for the expenses of operation increase rapidly with 
the speed of a vessel. Carrying space is filled with 
coal and machinery, rendering the vessel useless except 
for express, mail and passenger service. A remarkable 
increase in the size of freight vessels has taken place in 
the last two or three years, such vessels now being built 
to carry from twenty to twenty-five thousand tons of 
freight. In fact, so large are modern vessels that many 
ports are unable to accommodate them. The mainte- 
nance of ports, especially where nature has not materially 
assisted, is a difficult matter, for it is impossible for such 
large vessels to reach the wharfs and docks. Such a port 
is doomed so far as international trade is concerned, for 
the prompt unloading of vessels is one of the essen- 
tials of modern trade. To accomplish this pneumatic 
cranes lifting 120 tons at a time have been placed on 
the docks, while elevators are able by their machinery 
to move 120,000 bushels of grain an hour; with such 
facilities vessels are rapidly unloaded and the movement 
of commodities greatly facilitated. The third element, 
the sea, is entirely a product of nature, still it must be 
measured, charted and guarded to protect the vessels in 
their movements on the seas. As a usual thing the gov- 
ernments of the marine states have taken this upon them- 



TRANSPORTATION 131 

selves and provided the necessary charts, measurements, 
lighthouses, and life-saving crews. 

Not many years ago the clipper-built sailing ships 
carried the bulk of the world's trade. The invention 
of the steam-engine and the opening of the Suez Canal 
gave the iron or steel steam vessel a great advantage in 
the movement of commodities. Within recent years, how- 
ever, the sailing vessel of six or seven thousand tons has 
made its appearance, built of steel, and operated by a 
small crew aided by steam windlass and hoisting ma- 
chines. It is able to carry heavy freight at a very low 
rate, competing with the tramp steamer and oftentimes 
doing as well so far as length of voyage is concerned. The 
size of these vessels increased 100 per cent from 1884 to 
1894, while steam vessels made an increase of but 50 per 
cent in size. Under the new organization of industry the 
sailing ship has a place, and an important one. As an 
instance of this a statement concerning Pacific freights 
may be quoted : " New York to San Francisco freight 
rates are determined by the cost of carrying by vessel 
by sea from the Atlantic to the Pacific seaboards." The 
complaints of Middle West shippers on Pacific Slope rates 
bear out the statement just referred to. 

Railroads are the means by which the center of the 
industrial organization sends commodities to its borders; 
ships are the facilities through which the product reaches 
foreign lands. Both are essential, but it is the first which 
tends to control the second. Shipments originating in 
the interior are moved by the railroads and sent abroad 
on vessels engaged or chartered by the roads in whole or 
in part. To control the entire movement of the commod- 
ity from shipper to receiver is but a natural wish which 
has been followed recently by very close affiliations with 
great steamship companies. It is the railroad that re- 
mains the controlling power in transportation, assisted by 
the canal, the natural waterway, and the ocean vessel. 



132 MODERN INDUSTRIALISM 

Events point to the close affiliation of these elements 
under the direction of the railroad. When such a stage 
is reached the nation which has a well-developed railway 
system in close affiliation with steamship companies will 
be in the position to win the " contest on the seas/' for 
success in that contest must be determined by the ability 
to get the right articles to foreign markets in the quick- 
est time. 



CHAPTEK III 



MANUFACTURE 



Before a vast amount of production is possible, the 
earth must be searched for materials and long lines of 
cars and great fleets of vessels filled with raw materials to 
be placed in industrial centers. Still, the subordina- 
tion of the elementary industries to the formative stage 
of production overshadows the exceptional improvements 
in railroad, steamship and transportation facilities and 
marks the industrial organization by the factory system. 
The factory system, the term now used to designate 
the methods of production in vogue in the modern indus- 
trial organization, is the evidence of a world set up on 
iron and coal. These have been supplemented through 
their material manifestation in the form of railroads, 
steamships, and means of communication, and resulted in 
the development of great commerce and a struggle of 
nations for commercial supremacy. 

This form of national contest has taken the place of 
robbery and struggle for political power so evident in 
past history. The advance of civilization, together with 
the rapid accumulation of property in the past century, 
has eliminated plunder and made war a distinct disad- 
vantage to the nations engaging in it. The contest, how- 
ever, still goes on, not in an intermittent form as in the 
days of yore, but as a continuous industrial struggle for 
control of world-markets. Success in this contest de- 

133 



134 MODERN INDUSTRIALISM 

pends as of old upon racial qualities and also upon tools, 
organization and resources. The nation, then, that has 
organized out of its possessions of iron and coal a factory 
system and developed with it a higher order of intelli- 
gence, stands in an advantageous position in the conflict. 
The possession of a factory system is not alone sufficient 
to make a country victorious in the attempt to control 
the markets of the world, for the new mechanical pro- 
duction has worked a revolution in economic affairs, in 
the distribution of industry, commerce and trade, 
national policies and social conditions. The machin- 
ery, tools and organization of an older regime hardly 
suffice to keep a nation in the front rank in the face of 
the new inventions, late discoveries and better establish- 
ments. 

The dominant elements in this late development are 
found in the great increase of product, the growth of the 
by-product, specialization, and localization of industry. 
The first of this list which so typifies modern production 
is due to the presence of the factory system; the second 
to an extended division of labor not only in single fac- 
tories but also between industries and within industrial 
groups; the third to the invention of special tools to meet 
special wants such as the coal-cutting machine, track 
cranes and electric cranes; and the fourth to standardiza- 
tion and the system of interchangeable parts. Of these 
there is much to be said; the factory system awaits an 
audience, and to this topic we ask the reader to turn. 

"Manufacture is a word which, in the vicissitude of 
language, has come to signify the reverse of its intrinsic 
meaning, for it now denotes every extensive product of 
art which is made by machinery with little or no aid of 
the human hand ; so that the most perfect manufacturing 
is that which dispenses entirely with manual labor." It 
is with these words that Dr. Andrew Ure, writing nearly 
a hundred years ago, indicates the transition from hand 



MANUFACTURE 135 

production to machine manufacture. Continuing, the 
same writer says : " The term c factory system/ in tech- 
nology, designates the combined operation of many or- 
ders of work people, adult and young, in attending with 
assiduous skill a series of productive machines continu- 
ously impelled by a central power." 

The word itself, however, has undergone various in- 
terpretations. In the days of the Middle Ages a factory 
was an establishment of merchants resident in a foreign 
place and formed for mutual protection and advantage. 
They usually occupied special quarters under- their own 
control, and sometimes fortified their posts and depots. 
As used to-day, the meaning is very different, although 
still designating a building or series of buildings. The 
word also includes the machinery, the engines and pro- 
pelling gear within the walls. The modern notion of the 
word factory received legislative sanction in the year 
1802, when the term was applied to places where spinning 
or weaving was carried on by machinery.* Since then 
the designation " factory " has been applied by statute 
in different countries in a manner constantly varying and 
often inconsistent. The term then still remains unde- 
fined; for relief in the matter we turn to a definition, 
now classical, presented in the tenth census of the United 
States by Carroll D. Wright. It is there defined as fol- 
lows : " A factory is an establishment where several work- 
men are collected for the purpose of obtaining greater 
and cheaper convenience of labor than they could pro- 
cure in their homes, for producing results by their com- 
bined efforts which they could not accomplish separately, 
and for preventing the loss occasioned by carrying arti- 
cles from place to place during the several necessary proc- 
esses to complete their manufacture." Even this defini- 
tion conveys no idea of the present organization known 
as a factory, with its gigantic engines, great buildings, 
* 42 George III, Cap. 73. 



136 MODERN INDUSTRIALISM 

whirring machinery, numerous workmen and commercial 
organization. It is perhaps more nearly characterized 
by the modern word " plant." But whatever the term, 
the principle of the factory is to substitute the partition 
of a process into its essential constituents for other divis- 
ion or gradation of labor among artisans. The essential 
elements which enter into the make-up of a modern fac- 
tory are buildings, machinery, a central motive power, 
and consecutive processes of production. 

It was indeed the passage from the tool to the ma- 
chine which made the evolution of the steam-engine a 
necessity. The tool may be defined as an instrument of 
simple device operated directly by the muscular power of 
man, or, as the dictionaries put it, any implement used 
by a craftsman or a laborer at work, meaning of course 
directly used by the craftsman. A machine, on the other 
hand, is defined as a combination of mechanical devices 
driven directly by an extra-superhuman power or indi- 
rectly by muscular power. In the use of the tool the 
engine does not enter as a factor; it is only when the 
tool becomes by evolution a machine that industry, 
through the size, expense and weight of the machinery, is 
driven from the shop to the refuge of the factory. The 
change nevertheless brought greater power and produc- 
tivity, cheaper goods and wider markets. 

It is commonly declared that there are three parts 
to a machine. These are the motor, the means of transmit- 
ting power and the device for making the final contact 
with the raw materials. As soon as a great central motive 
power came to be a possibility the individual machine 
became in the first stage of the factory evolution nothing 
but a mere factor in production. It sank into the whole 
organization of production, and no longer stood forth as 
a single thing as it did in the days of the domestic system, 
but was a part of the whole. Under the wider develop- 
ment of the factory each detail machine furnishes the 



MANUFACTURE 137 

raw material to the one next in order, and the whole forms 
a series of iron slaves driven by a relentless power to the 
creating of products. 

The manufacture of products by machinery has de- 
manded the making of machines by machinery, a result 
directly traceable to the increasing products and the de- 
creasing purchasing power of units. Thus the manufac- 
turer is compelled to produce more rather than less to 
secure the same income; he wants therefore machinery 
that will produce rapidly and at the lowest cost. To do 
this the same economy found in the manufacture of 
commodities must be transferred to the creation of ma- 
chines. The machines of the factory early in its history 
threatened to grow so large that it would have been im- 
possible to create them by the pigmy tools of men. " Mod- 
ern industry had therefore to take in hand the machine, 
its characteristic instrument of production, and to con- 
struct machines by machines." When it did this the in- 
dustrial organization had for the first time a real technical 
foundation. The development of machines, created by 
machines, was hurried forward by the increasing demands 
for steamships and locomotives to carry the finished prod- 
uct of the factory. The growth of the machine trades 
in consequence has been most marked, for upon them 
has fallen the burden of supplying the machines, tools and 
equipment of the new industry. 

The transition does not affect alone the type and form 
of the machinery, but it also touches, as pointed out by 
Hobson in his Evolution of Capitalism, the ownership of 
modern material, tools and power, and the relations be- 
tween the units of labor and the place of work. In the 
simplest form of industry, where the worker in his cottage 
controls the tools, power, materials and place, the relations 
between the units of labor are the simplest and the or- 
ganization hardly worthy of the name. The production 
is then limited in amount and enters a market confined 



138 MODERN INDUSTRIALISM 

to the immediate neighborhood. The incentive to in- 
vention before the days of the factory system was the 
inadequate supply of yarn for which the weavers had to 
use various subterfuges. The methods of spinning 
having been improved through the invention of the spin- 
ning-jenny, the weaver fell behind and required better 
looms to keep up with the spinners. These were supplied 
in time and the spinning- jenny and looms coupled with 
steam went a long way toward the creation of the fac- 
tory. Before this event actually took place, a modified 
system of the old domestic system of manufacture had 
been established by groups of capitalists, who were given 
the significant name of " putters-out." Reference has 
already been made to these individuals in the second 
chapter of the first part. By their appearance in the 
field of industry the material and product were taken 
from the weavers and retained by the capitalists, the 
weavers receiving a stipulated amount for their work. 
The tool, power and place were still in the possession of 
the worker. This system of distribution of material and 
the collection of finished product is known as " the mixed 
form of production." 

In time the capitalist gathered a number of looms 
under one roof and operated them by the employment 
of weavers. The transition was almost complete, still 
the power was furnished by the worker and the machine's 
were independent of and not dependent upon each other. 
When the factory system was established the materials 
were furnished by the capitalists, the power created by 
a steam-engine, the machinery made a part of the factory 
and the workers withdrawn from their homes and former 
places of working. The whole industry had in every 
essential passed to another control. 

The weaver becomes in this movement a dependent, 
a factor, a part of a great machine system and subordi- 
nated to the machine which he tends. His interests in 



MANUFACTURE 139 

production from the financial point of view are limited 
to the getting of wages, he is no longer a director of 
industry. Labor in the new scheme of production be- 
comes in a measure of less importance than capital, and 
cheaper grades of workers are substituted for the skilled 
handicraftsman who occupied his place of producer be- 
fore the days of the factory. These statements are not 
a denial of the benefit of a factory system, for man very 
materially increases his productive power by the use of 
machinery through the application of various mechanical 
devices. Manufacture in itself is essentially a wide di- 
vision of labor marked off from the extractive, trans- 
porting and merchandizing industries. Such a division 
is seen in the rough in the earliest organization of a 
productive society and is always followed by an inter- 
industrial partition that leads to the existence of many 
occupations. Thus at first men engage in extracting, then 
manufacturing, transporting and merchandizing. The 
fisherman brings to the village the results of his labor, 
another manufactures canoes and a third transports dried 
fish elsewhere and begins merchandizing. The division 
of labor is then in its roughest form; specialization, how- 
ever, makes its appearance more and more as the path 
of production is opened to the workers. There arises as 
the community grows in years independent handicrafts- 
men, who are the forerunners of the great industries of 
modern times. These men are engaged in special pro- 
duction that is sometimes divided into its detailed proc- 
esses, which are later crystallized into the exclusive func- 
tion of some individual worker. 

Production is thus far what might be termed a single- 
handed creation of commodities. The cooperation is pas- 
sive and not active, but as the population increases in 
numbers the artisans are grouped under one roof, each 
one producing as he did before in the single-handed pro- 
duction. Thus the manufacture is at first a combination 



140 MODERN INDUSTRIALISM 

of different handicrafts that are in the final organization 
subordinated to some particular phase of the work, the 
product being the joint creation of the workmen. The 
advantage in the concentration is found in the purchase 
of supplies, in the avoidance of distributing of material 
to scattered workers and in the centralization of the prod- 
uct. Just the reverse to the form of manufacture spoken 
of above is that carried on simultaneously by a number 
of workers in the same shop. Each one produces the 
same thing until an increased demand forces a reorgan- 
ization of the work and a new assignment of special tasks 
to each worker. Instead of each worker producing the 
completed product as formerly the total output is now 
the result of the combined efforts of the workers. " The 
mode in which manufactures arise/' therefore, to quote 
Karl Marx, " is twofold. On the one hand, it arises from 
the union of various handicrafts, which become stripped 
of their independence, and specialized to such an extent 
as to be reduced to mere supplementary partial processes 
in the production of one particular commodity. On the 
other hand, it arises from the co-operation of artificers of 
one handicraft ; it splits up that particular handicraft into 
its various detail operations, isolating and making these 
operations independent of each other up to the point 
where each becomes the exclusive function of a particular 
laborer. On the one hand, therefore, manufacture either 
introduces division of labor into a process of production, 
or further develops that division; on the other hand, it 
unites together handicrafts that were formerly sepa- 
rate." 

In modern days what in many industries was an essen- 
tial element or a distinct process in the creation of the 
product has been factoried. That is to say, workers 
have been brought in conjunction with machinery into a 
special building to produce some one article that was for- 
merly manufactured in the regular course of production. 



142 MODERN INDUSTRIALISM 

A carriage illustrates well the modern method of manu- 
facturing. One factory creates hubs, another makes 
wheels, a third prepares axles, a fourth provides the body, 
another manufactures upholstery, a sixth produces the 
hardware and the seventh one assembles the parts and puts 
forth the complete product in the form of a carriage. 
Nor has the movement toward a more extended par- 
tition of production ceased. It is, however, accompanied 
by a marked tendency setting in the direction of concen- 
tration. The cotton industry in England illustrates the 
tendency of excessive division of industry. In that in- 
dustry one factory is devoted to spinning, not only cotton 
thread, but oftentimes thread only of certain sizes; an- 
other factory weaves, a third sizes and prepares the cloth 
for the market. In America the factory would spin, weave 
and size the cloth ; the separate factories, as in the English 
system, would not be established. Concentration of 
effort is notably a product of modern economy, so that 
to-day the problem is to secure the continuous produc- 
tion from the time the raw material is procured to the 
distribution of the product to the consumer. In the great 
United States Steel Company an excellent example of 
concentration presents itself to the reader. That organ- 
ization mines its own ore, carries it in the company boats, 
unloads it at company docks, transports it by company 
railroad to the company plant, after manufactured sells 
through company agents to the consumer. Although the 
concentration of industry is so marked at present, there 
is nevertheless an increasing elimination of useless proc- 
esses and the introduction of inventions and machines 
wherever the process of manufacture can be shortened. 
Such a movement demands special tools and machines 
in order to save time and expense in the production of 
machines and the handling of products. Consequently the 
third of the typical elements found in modern industry will 
refer to the special machine. 



MANUFACTURE 143 

A long stride was made in factory organization when it 
was possible to produce machines for some special work 
in the manufacture of commodities. The special machine 
is a mechanism devoted to a continuous work. Its use de- 
mands a factory with sufficient orders to keep it constantly 
in operation, otherwise there is no economy in its employ- 
ment. In a factory where there are many special machines 
the work must move with a steady progression toward 
completion; nothing must be allowed to stand in its way, 
and where work is likely to block the system special porta- 
ble machines must be created to go the rounds of the work 
likely to break down the routine system. The benefits de- 
rived from the use of the special machine are found in the 
saving of time and material, lower labor cost and a larger 
output at a lower cost. The use of electricity in the manu- 
facturing system introduced a wide extension of the special 
machine idea, for it is possible to secure a better power, 
and a more extended use of it, than with belting and shaft- 
ing so prominent in the use of steam as a motive force. 
The losses from shaft transmissions are said to be thirty to 
fifty per cent, while the electric power transmission loses 
but thirty at the most, a saving in the course of a year of 
perhaps fifty dollars for each horse power employed. Elec- 
tricity also permits the use of the singular mobility of the 
electric power, and the introduction of electric traction in 
a plant follows as a matter of course when the electric sys- 
tem has once been established. The days of cheap equip- 
ment are rapidly passing by and the best tools and machines 
are selected for the work. Every manufacturer vies with 
his competitors in securing the best machines that he can 
get. Such competition means the employment of the special 
machine whenever and wherever possible, for in the end it 
means a better product at a lower cost. 

The true test for manufactures as opposed to the hand- 
trades is not found in the use of power, the use of ma- 
chinery, production for the general market, or production 



144 MODERN INDUSTRIALISM 

under a division of labor, but in the standardization of the 
process. A distinction based upon power alone would ex- 
clude a considerable number of factories from the list of 
manufactures. Standardization applies to all the proc- 
esses which create so-called " standard products " for 
general demand. This demand is so strong and regular 
that the manufacturer can produce his commodities ac- 
cording to some acceptable size, form, or shape. The man- 
ufacturer of ready-made clothing standardizes his meas- 
urements and sizes and produces large quantities of goods, 
knowing that there is a sufficient demand for the regular 
sizes to take all of his product. There are occasional indus- 
tries in which manufacturing is carried on in every sense 
of the word, but the product on account of the great ex- 
pense is not standardized. An instance of this kind is found 
in the building of ships, parts of which are standardized, 
but the completed product is created in accordance with 
specific plans. 

The object of standardization is to use a definite level 
of excellence at a diminished cost. The benefits from this 
system, for it has reached the dignity of one, are found 
from the point of view of the manufacturer in the items 
of cost, delivery and quality, and to the purchaser in stable 
sizes, uniform quality and quick delivery. The items of 
cost to the man engaged in production are the cost of mate- 
rials, labor and operating expenses. These items are ma- 
terially reduced where standardization is possible because 
of the resultant large output and the use of specially de- 
signed machines devoted to one kind of work. But what 
is still more to the point the manufacturer can assure his 
customer of quick delivery, uniform quality and sizes; 
while on the other hand the manufacturer is not compelled 
to put out as large an investment, his plant is operated to 
better advantage and the shop maintenance is less than in 
the case of special manufacture. The old plants with their 
invested capital are opposed to a system of standardiza- 



MANUFACTURE 145 

tion, but the lowered cost in relation to the results is 
in complete harmony with modern economic tenden- 
cies. 

The possibilities of standardization are strikingly 
shown in a recent international incident. The Egyptian 
Government desired a bridge for the Atbara at the earliest 
possible moment ; inquiry was made of the English bridge- 
makers, but no promise of prompt delivery could be 
secured. Within twenty-seven days after the tender of 
the contract was made to an American firm the bridge 
was ready for shipment. The feat, not a remarkable one, 
was due to the standardization of the bridge material. 
This in itself was a guarantee of quick delivery and con- 
struction. 

Soon after its adoption the standardization of ma- 
chinery was followed by the system of interchangeable 
parts. Through its establishment the owners of expensive 
machines were able to make repairs or renew parts without 
difficulty. The advantages from this system have been 
very great and it has enabled the United States, where 
interchangeable parts have been widely accepted as a neces- 
sary feature of trade, to extend her trade very materially in 
foreign lands. In a report upon this subject an authority 
said the general growth of the "interchangeable system" 
in manufacturing has had an influence in the development 
of manufacturing, agricultural, and other industries which 
but few have hitherto appreciated. It may not be too 
much to say, in some respects, this system has been one of 
the chief influences in the rapid increase of the national 
wealth. Two of the great industries which constitute the 
basis of this wealth, agriculture and manufactures, now 
depend upon the existence of this remarkable feature in 
manufacturing, which has reached its highest development 
in this country. The growth of this system is due to the 
inventive characteristics of the people, and their peculiar- 
ity in seeking the best and most simple mechanical methods 
11 



146 MODERN INDUSTRIALISM 

of accomplishing results by machinery, untrammeled by 
traditions or hereditary habits and customs.* 

In a book on the American workman the French econo- 
mist, E. Lavasseur, says of the system : " What has been 
called the system of interchangeable mechanism, stands in 
intimate relation, both as cause and effect, to the progress 
of concentration in certain industries. Establishments 
using this system number and classify, by size and quality 
when possible, the parts of the machine they manufacture, 
and make them so uniform that any part is capable of being 
replaced by another of the same number. Under such con- 
ditions the manufacturer finds it advantageous to employ 
the most powerful and delicate machinery, which, being 
confined to a single operation, turns out its product in large 
quantities. The purchaser of a machine made in this 
way finds no difficulty in. securing by correspondence a 
substitute for any part that gets out of order. Thanks to 
this system the manufacturer can produce more cheaply 
on the one hand, and on the other, he can enlarge his trade 
— two very important considerations in a country as vast 
as the United States. Specialization is the result of this 
system, which is to-day applied to almost every commodity 
of large consumption, from agricultural implements and 
steam-engines to watches and nails." 

Logically the outcome of specialization is localization 
of industry, a condition due in the earlier days to accident, 
and in the present to commercial reasons. A distinction, 
however, is to be made between the forces of location and 
the influences that tend toward concentration and localiza- 
tion of factories at specific points. The first determine the 
nation and the region in which an industry may develop, 
the second fix the place where a group of factories is to 
be located. The one is general in its tendencies, the other 
specific. The -forces of location may be enumerated as 
climate, natural deposits, physical position and waterways, 

* Twelfth Census of United States, Manufacturers, Part I, p. lix. 



MANUFACTURE 147 

and the character of people ; while the concentration and 
localization influences are the nearness to material and 
market, water-power, favorable climate, a local supply of 
labor and capital for immediate investment. 

Climate has had in the past, and has now, a wonderful 
influence in determining national industries. The posses- 
sion of a favorable climate is a great national advantage 
resulting in the building up of large industries within the 
national boundaries. Partly on account of the require- 
ments of a moist atmosphere in the industry of spinning 
fine fabrics the cotton industry has made wonderful strides 
in the Lancashire district of England, where there is a 
dampness that fits admirably into the requirements of 
spinning. It is stated that the advantage coming from this 
favorable environment is equal to seven per cent on the 
cost over and above the New England factories, where they 
are compelled to force steam into the spinning-rooms to 
get the proper degree of humidity. Other examples can 
be given of this influence, as in the instance of cigarette 
manufacture in Egypt. There a dry climate prevails 
which preserves the aroma of the tobacco perfectly; as a 
consequence tobacco is brought thousands of miles to the 
land of the Pharaohs. Abundance of ice in a northern 
region will influence the location of packing-houses; and 
the presence of natural deposits, as in the case of the oil 
industry, will determine the establishment of manufactur- 
ing concerns. Harbors, waterways, and transportation 
facilities will sometimes draw capital and labor to a prom- 
ising region. Often cheap labor has a similar influence 
in causing the investment of capital in comparatively new 
commercial countries. A number of instances of this state- 
ment have been published in the public press; in these 
reports it appears that the cheap labor of Mexico, Japan 
and China is to be utilized by capitalists to manufacture 
various products by the aid of extensive machinery. Per- 
haps a still more notable influence is the character of the 



148 MODERN INDUSTRIALISM 

people, their technical training, perseverance and skill. 
Thus it is said that the high intelligence of the American 
workman is due to the system of public instruction, and 
his skill to the mechanical instincts of the people and the 
discipline of the shops. 

The concentration of industry at a specific point is due 
to a number of causes already enumerated as nearness to 
materials and market, water-power, favorable climate, a 
supply of labor and capital available for investment. In 
the days of accidental selection of location the momentum 
of an early choice was sometimes sufficient to centralize an 
industry and keep it localized until a population had grown 
up around the factory in such large numbers as to give a 
supply of labor and a market of considerable regularity. 
Nearness to market and material no longer means within 
hailing distance, but has reference to accessibility, , which 
depends upon the transportation facilities and the char- 
acter of the commodity. 

In another place it was stated that the fisheries and 
shipping industries early supplied a capital for the New 
England factories. This is an instance of localization 
due in part to the possession of capital in a community 
which was used to build up manufacturing. There are 
many agricultural sections which, having prospered, are 
using their surplus to build up small factories in their 
neighborhood. And sometimes this is the only reason for 
the establishment of the factory in a specific place, although 
in New England the presence of water-power and an 
intelligent population utilizable as factory-workers were 
additional incentives. 

The localization points of industries are selected in the 
first instance with some advantage in mind, but the choice 
is nevertheless a matter of chance, for the reason that the 
advantage may disappear in the changing of conditions. 
Factories established at competitive points for the purpose 
of securing better freight-rates may find that with the 



150 MODERN INDUSTRIALISM 

growth of other centers this advantage no longer exists. 
Early in the history of Minneapolis the flour-mills were 
erected on the banks of the Mississippi at St. Anthony 
Falls to make use of the water-power. For many years 
this was a distinct advantage, but with the increase 
in the number of mills and the failure of the water-supply in 
the Mississippi at certain times in the year the advantage 
in the Minneapolis flouring center is no longer based upon 
water-power, but upon nearness to the wheat-fields of Min- 
nesota and Dakota and the incentive of an early establish- 
ment. 

The proof of the advantage in the localization point of 
an industry is its success. Prosperity having come to the 
pioneer of the industry localization begins when his imita- 
tors follow his example and set up their factories in the 
same town. The very success of the first enterprise has 
demonstrated to his imitators that the economic conditions 
are favorable and a local bias toward that industry is 
started that draws managers, capitalists and laborers to the 
growing manufacturing center.* The value of an enter- 
prising industrial center to the captain of industry is in 
the presence of men, with capital seeking investment, and 
a body of skilled workers. In the course of time some 
very distinct advantages emerge from the centralization 
of industry at geographical points. First among these 
may be mentioned the mobilization of skilled laborers who 
are often highly specialized in their crafts. This is an ad- 
vantage, however, that is distinctly lessened by the extend- 
ed use of machinery. The second is the development of an 
extensive subdivision of the processes of manufacture 
among employees. This point has already been referred 
to in the early part of the chapter. Third, there is in such 
a community continual improvement of machinery and 

* Part I. Statistics of Manufacturers, Twelfth Census of the United 
States, has furnished many points for the discussion on Localization of 

Industry. 



MANUFACTURE 151 

the adoption of new processes as soon as introduced. " As 
a result, new and up-to-date tools and machinery may be 
had in such centers with the least possible delay, and ex- 
isting machinery may be kept continually in repair. The 
town's specialization increases its supply of specialized la- 
bor and specialized machinery. These in turn react to in- 
crease the specialization of the town. Success breeds suc- 
cess in almost geometrical ratio. Cause and effect propel 
each other in a continually expanding circle, the self- 
created local advantages becoming in time so powerful that 
they entirely neutralize the greater advantages of location 
which other localities may have come to possess." * 

Specialization in the creation of separate industries 
leads to localization, and in time to still more extended and 
detailed specialization. When this point has been reached 
and the industry is concentrated in location and in the 
division of function, there still remains the concentration 
of ownership and management. This is a natural result 
likely to come out of the specialization, just referred to, 
and the excessive competition likely to take place between 
localized plants. The movement in the organization of 
concentration took two forms : one to obviate the difficulties 
of too much competition, and the other to secure the advan- 
tages of unified ownership and management in large produc- 
tion. The first became entirely a matter of organization 
and finance ; the second, while necessarily confronted with 
financial problems, was fundamentally a question of econ- 
omy in the use of productive agencies. The first therefore 
disappears from this part of the discussion while the other 
continues under the title of " large scale production." 

Without intending to emphasize the point too strongly 
the distinction between production on a large scale and the 
combination of separate plants may again be called to the 
attention of the reader. The first of the terms applies to 
the creation of commodities with the best of machinery, 
* Page ccxiv of last reference. 



152 



MODERN INDUSTRIALISM 



the largest and most thoroughly organized factories, a 
highly equipped labor force and efficient management. 
The test of such production is " low cost." Combination, 
on the other hand, has to do with the control of a number 
of plants under one management. The advantages which 
accrue to society are those due to the elimination of some 
of the managers, selling agents, and to better facilities for 
purchasing and handling raw materials, although much 
doubt may be cast on this statement. The tendency of the 





f&> ■^7T7^c^_ i 








B- ^S^ 





Dynamo room of a modern electric plant. 



latter is toward monopoly, and in the end is not likely to 
encourage the development of the most efficient organiza- 
tion. Without competition many of the economic ad- 
vantages secured through combination of plants may be 
lost. 

A group of five phrases includes all the advantages 
arising from the extensive production outside the pale of 
monopoly and combination. These are, economy in motive 
power and plant, economy in machinery, organization of 



MANUFACTURE 153 

labor, utilization of by-products and special facilities in 
placing the product on the market. An examination of 
them in order of statement may throw light upon the 
development of production on a large scale. 

In the erection of a plant the old geometrical rule that 
space increases as the cube of the dimensions applies to 
the building of factories, and as a result extensive wall 
area increases materially the capacity of the factory. A 
somewhat similar rule applies to engines, for fuel cost and 
other expenses decline per horse-power as the central au- 
tomaton increases in size. There is, however, a limit to 
the economies resulting from the size of plants, as seen 
especially in the size of boilers, engines and machinery, 
and after the limit is reached it is necessary to equip new 
factories, for the economies of large scale production have 
virtually ceased when this point is reached. But a large 
concern can arrange and organize its machinery so as to 
receive the best possible returns from its operation. To do 
this requires large capital, for the growing specialization 
of industry is constantly adding new machines and casting 
out old ones. Thus a witness before the United States 
Industrial Commission testified that in order to build and 
equip a plant for the manufacture of steel and to carry 
on the business with the expectation of meeting all comers 
an investment of from $20,000,000 to $30,000,000 is 
required. 

The arrangement of the machinery in a large steel 
plant is described by E. Lavasseur in his book on the 
American Workman as follows : " The eight blast-furnaces 
are arranged in two rows and built upon platforms. Each 
furnace is provided at the back with four blowing-engines 
and has a capacity of from 300 to 350 tons per day. To- 
gether with the three converters, each able to pour 2,000 
tons of steel daily into the ingot molds arranged around 
them, they produce an imposing idea of the power of this 
establishment. The rolling-mill, which is about three hun- 



154 MODERN INDUSTRIALISM 

dred feet long, produces an impression even more thrilling, 
because the exhibition of power is supplemented by the 
crash and roar of enormous machines at work. These ma- 
chines take up the glowing ingots, which are longer than 
a man, carry them to and from the rolls, flatten them and 
finally draw them into sections. They are transformed into 
steel rails instantly, so to speak, and are then carried by 
tables moved on endless chains to the end of the room, 
where circular-saws cut them into regular lengths, with 
a strident grinding and a continuous shower of sparks. 
There are few workmen in this vast room. In the center 
a roller with three or four assistants directs the machinery 
by pressing a button. At the end of the room one sees a 
few laborers. The machines do everything and there is 
much to be done : the rolling alone requires three thousand 
horse-power. But they accomplish their work with ease, 
now giving the idea of might as the rolls exert their power, 
now that of grace as the cranes grasp and lift the ingots." 
In successful manufacturing it is highly essential that 
there shall be the same co-ordination of machinery and 
processes as in the example given above. Such a result is 
only securable through the administrative genius of an 
executive who requires such number and character of sub- 
ordinates as will fit the plan of organization. Varying 
grades of skill and directive power meet and touch each 
other in the operation of a plant. The object is to secure 
related steps and processes that may be operated continu- 
ously and uninterruptedly in the creation of commodities. 
To accomplish this demands an extensive division of labor 
in the work both of new and of old machines ; the outcome 
of such specialization is the introduction in the manu- 
facture of specialists and specialized machinery. The 
purpose is to ascertain the exact number of processes that 
will save the most time and produce the largest output. 
This principle Babbage expressed in these words: When 
the number of processes into which it is most advantageous 



MANUFACTURE 155 

to divide it is ascertained, as well as the number of indi- 
viduals to be employed, then all other manufacturers who 
do not employ a direct multiple of this number will pro- 
duce the article at a greater cost. 

The most striking phase of modern manufacturing is 
the utilization of former waste products. The competi- 
tion of manufacturers for a place in the markets of the 
nation and of the world is becoming keener and sharper, 
forcing as a consequence the closest study of the possible 
utilization of waste materials. In Germany and England 
careful attention has been given to the question of by- 
products, but in the United States, where nature has been 
lavish with her resources, little attention has been given 
the by-product, the whole tendency having set strongly in 
the direction of organization and the development of ma- 
chinery. The competition, nowever, has finally forced 
utilization of waste products, although the investments in 
old plants stand in the way of the immediate adoption of 
the new methods. It is stated by a writer in the Engineers' 
Magazine that by-product coking would mean the casting 
aside of thirty millions of dollars invested in the old bee- 
hive ovens ; even as the industry is now conducted the by- 
product is six millions' worth of ammonia sulphate and 
£.ve million dollars' worth of tar. The ultimate result 
may be the shifting of coke-making from the fuel-fields 
to the centers of population, where the excess gas can be 
used for industrial purposes. 

" The tendency everywhere," says a writer in the final 
report of the United States Industrial Commission, " is 
to finds ways of utilizing rejected substances or scraps of 
material. Out of the residuum from the refining of petro- 
leum a hundred valuable products are now manufactured. 
Cotton-seed, once chiefly wasted, is made to produce a 
highly useful and valuable oil. Even the utilization of 
tin-scraps, one of the most perplexing problems of earlier 
days, is now comparatively well solved. The change from 



156 MODERN INDUSTRIALISM 

iron to steel has been from a weldable, but practically non- 
fusible substance, to one which may be freely and fully 
melted into a mass, however the character of the scrap may 
be varied. The re-employment of old iron which can be 
dissolved into the new steel mixture, or of worn-out or 
rejected steel of all qualities by converting it into new 
products, is a most important economy. These illus- 
trations are paralleled in all departments of industry as 
the outcome of modern methods and inventions. Both the 
introduction of new products and the utilization of by- 
products and of wastes are direct contributions to the 
world's wealth." 



CHAPTER IV 

FORMS OF INDUSTRIAL ORGANIZATION 

Outside the contribution of nature to man's welfare in 
an industrial society capital and labor are the most impor- 
tant factors in the creation of products. Consequently the 
forms which the two factors take on in their organization 
have a vital influence upon the industrial activities of the 
community. The two differ materially, however, in the 
type of organization which they assume. Capital passes 
gradually from the partnership through the joint-stock 
company and corporation to the giant combination. Its 
organization form is entirely industrial in character and 
results. On the other hand the organization of labor out- 
side of all consideration of the division of labor, functions 
which already have been discussed in a previous chapter, is 
social in character, touching more or less directly through 
the adjustment of wages the regulation of the conditions of 
employment and the production of commodities. The form 
of organization which labor takes on appears in the local 
trade union, the national union, and the Federation of 
Labor unions, and sometimes in an effort to eliminate the 
evils of capitalistic control of industries in cooperation. 

The two groups of industrial organization are con- 
stantly meeting in the every-day conduct of production. 
The owners of capital, whether they have organized as a 
partnership or a corporation, are the directors of industry 
controlling the purchase of materials, the use of machinery, 

157 



158 MODERN INDUSTRIALISM 

the employment of labor, and the sale of the output. The 
laborers in their organizations can only hope to affect the 
labor contract, the hours of employment, the wages paid, 
and the output of the individual worker with the increas- 
ing strength of the two factors. The tendency is to come 
together in a system of collective bargaining for the 
purpose of settling the terms of the labor contracts. 
The functions of a labor organization are virtually ful- 
filled where this has been accomplished, while the capital- 
istic organization has still to deal with the problems of the 
division of labor, machine production and the marketing 
of the product. 

The key tp the changes in the forms of capital organiza- 
tion is the organization for larger production. In the 
earlier days of industry it was held that each man in busi- 
ness was personally responsible for all the debts contracted 
by him. " But as a concern becomes larger and larger, it 
grows more difficult for a number of owners individually 
to see how it is managed. If a hundred men unite their 
capital in an industry they must necessarily put the con- 
trol in the hands of a board of directors, and can only 
know by occasional reports how their business is conducted. 
Under these circumstances it is manifestly unjust to hold 
them all responsible to the extent of their whole private 
fortunes for mismanagement on the part of the director. 
. . . Under such circumstances it is quite fair to transfer 
a part of the responsibility for loss from the shoulders of 
the investor to those of the outside public. . . . Without 
such limit of responsibility it is practically impossible to 
get the necessary capital subscribed for undertakings where 
the investors can not exercise personal supervision." * 

The demand for amounts of capital, far beyond the 

ability of a few individuals to furnish, forced in time the 

establishment of the principle above enunciated. The 

growing numbers of those who possessed capital, but who 

*Hadley, Economics, p. 144. 



FORMS OF INDUSTRIAL ORGANIZATION 159 

had no special knowledge of trade or commerce, likewise 
added to the demand for a limited liability system. It 
was only gradually, however, that principles now found in 
the corporation came into being. Without going into the 
history of these principles the contrast between the cor- 
poration and the early forms of organization may be illus- 
trated by the partnership and the joint-stock company. 
The first of the two was probably well developed by the 
time of Queen Elizabeth, in whose reign a rapid growth of 
commerce took place. It is defined as an agreement be- 
tween two or more individuals to carry on a business with 
a view to a profit in common. In such a union each partner 
is the agent of the partnership and can bind the members 
to any contract he may choose to make. Strenuous as the 
measures appear to be, the law takes it for granted that 
the business being under their direct superintendence the 
partners can avoid the dangers and pitfalls of commerce. 
This form of organization hardly met the requirements 
of large production with its burdensome unlimited liability 
and lack of negotiable shares. 

Midway between the partnership and corporation are 
certain forms of organization that may be regarded as 
mile-stones on the way to the corporate goal. Neither of 
them partakes of the great features of a corporation al- 
though distinctly an advance over the partnership form. 
The reference is to the limited partnership and the joint- 
stock company. The burden of an unlimited liability still 
stood in the way of large investments. " One of the earliest 
attempts to meet this need was by the partnership in com- 
menda, where a comparatively small number of persons 
assumed the active management and the responsibility of 
the enterprise, while others simply furnished capital for 
the sake of a share in the profits." The limited partner- 
ship is consequently composed of two groups of partners, 
one which directs the business, and whose liability does 
not differ from the liability of ordinary partners, and the 



160 MODERN INDUSTRIALISM 

other having no active control assumes only a liability 
equal to the capital invested. About this form of organiza- 
tion the state has hedged many restrictions which have 
prevented its general use. The joint-stock company — 
the name given to the form described — made its first ap- 
pearance as an industrial organization with some of the 
features of the modern corporation. The capital was di- 
vided into negotiable shares, a step in advance of the 
partnership. The government of the company was vested 
in a board of directors elected by the shareholders. Thus 
the principles of shares and representative government 
Were brought into use, but the unlimited liability of share- 
holders still remained and the investment of capital in 
industrial enterprise was correspondingly retarded. This 
was the situation in the earlier history of the joint-stock 
company, but beginning with 1822 in the United States 
the joint-stock company has been modified and changed 
by statute law to such a degree that it differs to-day but 
little from a corporation. It is no longer necessary to sue 
each individual member, or possible to force the burden 
of the debt on the wealthy members of the company. Under 
statute law the joint-stock company can sue or be sued in 
its own name, own property, conduct a business and be 
free from the unlimited liability of debt, though it is re- 
strained from ever incurring an obligation larger than its 
capitalization. 

What the corporation was to contribute to the industrial 
forms of organization, even beyond the principles of 
shares, limited liability and representative government, 
was a legal personality, immortal and intangible, separate 
and apart from the persons composing it. Though an arti- 
ficial person created by law from a group of natural persons 
and having a continuous existence, nevertheless its powers 
and liabilities are different from those of its members. 
The powers, however, are conferred upon the organizers of 
a corporation either by special legislative act or by a gen- 



FORMS OF INDUSTRIAL ORGANIZATION 161 

eral statute. An individual then can not assume the form 
and powers of a corporation as a matter of right, for arti- 
ficial bodies are created by a sovereign power as a privilege 
and not as a right. 

The relationship between the state as a sovereign 
power and the incorporators is set forth in -an instrument 
called a charter, which is a contract between the state and 
the incorporators, the incorporators and the stockholders 
and the stockholders and persons dealing with the corpora- 
tion. Through the making and granting of the charter an 
organization is created that has a perpetual existence ex- 
cept when modified by statute. Its life, as in the case of 
a partnership, does not depend upon the existence of the 
persons owning the capital, which is a great factor in 
stimulating and continuing long business contracts. The 
charter also grants the right to sue and be sued, to purchase 
lands and hold them for the benefit of the incorporators 
and their successors, to have a common seal and to make 
by-laws for the better government of the corporation. 

Finally there was evolved an organization that made 
it possible for a group of individuals to act as a single 
person without incurring personally the financial responsi- 
bility of an unlimited liability concern. The new form 
of organization had then a representative form of govern- 
ment, division of capital into shares, perpetual succession 
and limited liability. Under the influence of these cor- 
porate privileges the investment of capital has advanced 
by leaps and bounds. To investors it has offered chances 
of great returns without great risks, and to men of ability 
a rare opportunity for the exercise of their abilities, while 
to the public came the advantages due to a wider industrial 
activity incited by the use of capital centralized from 
many sources. 

Although states and nations have provided so bounti- 
fully for the creation of corporations, nevertheless, ways 

were furnished for their possible dissolution. One gives 
12 



162 MODERN INDUSTRIALISM 

the shareholders the right to surrender the franchise, an- 
other provides for forfeiture by judicial decree if the cor- 
poration extends its activities beyond the privileges of its 
charter, and the third, through the power that granted the 
charter, may take it away by compulsory legislation al- 
though the law of the English-speaking States has thorough- 
ly established the obligation of contracts. Such an act on 
the part of a State over its subject corporation would fol- 
low only after an " ultra vires " violation of the charter. 
In these days the most common act of this character of 
which a corporation is guilty, is an illegal combination to 
create a monopoly. These combinations of corporations 
brought an immense power into the hands of the directors 
and aroused the antagonism of states to such a degree 
that hostile legislation has followed, particularly in the 
United States, that has forced the corporations to create 
new forms of organization. In the organization of in- 
dustry the tendency in the last quarter of the nineteenth 
century has been toward the elimination of excessive com- 
petition and the organization of individual producers into 
industrial groups under a centralized direction. In some 
instances, particularly that of railroad operation, the 
competition between groups grew so strong that it was 
necessary in order to maintain rates and an equitable 
division of the business to secure the consolidation of the 
hostile groups. 

In securing control of a group it was first necessary 
for the originators to secure the acquiescence of the former 
competitors, and second, in order to make the control of 
the product complete to bring into the plan the producers 
engaged in manufacturing the raw material needed by the 
members of the combination. A notable example of the 
stages in group organization is seen in the causes leading up 
to the creation of the United States Steel Company. By 
1896 there existed in the United States a number of trusts 
engaged in the production of special steel products. These 



FORMS OF INDUSTRIAL ORGANIZATION 163 

began to prepare not only for the manufacture of the 
finished articles they were already putting out, but also 
to make their own billets and pig-steel. The Carnegie 
Steel Company was then engaged in supplying the raw 
materials to the manufacturers of the finished products, 
and in order to protect itself was forced to announce that 
it would be compelled to produce steel tubing, tin-plate, 
wire and other products. The remarkable organization of 
the Carnegie Company gave it a great advantage in any 
contest it might enter, while the organizations of the indi- 
vidual competitors were burdened with large fixed charges 
and possessed no reserves. The natural wish of the promo- 
ters of consolidation was to avoid any contest with so for- 
midable a competitor as the Carnegie Company and to 
create a gigantic corporation capable of controlling the 
entire iron and steel industry. 

The type of large-scale industrial organization before 
1890 was the trust, which gave the maximum of control 
with the minimum of financial responsibility. Through 
this form it was possible for a board of directors to issue 
trustee certificates to shareholders, guaranteeing to them 
a good dividend and permanent values, while the share- 
holders in return delegated the right to vote to the trustees. 
In this manner it was quite possible, as was repeatedly 
demonstrated, to secure the control of a number of manu- 
facturing concerns and place them under the direction of 
a few individuals. But the law in the form of an anti- 
trust act declared this procedure illegal, and forced for one 
reason or another a change in the type of organization. 
The succeeding forms have been still more extended, 
resulting in centralization and very large corporations. 

In many respects the centralized corporation is like the 
original trust form, in that the companies composing it 
still retain their original existence and are governed 
through the representatives of the promoters and the boards 
of directors of the different concerns. This control is se- 



164 MODERN INDUSTRIALISM 

cured by the purchase of a majority of the stock, or possibly 
the entire stock, of each one of the corporations. The offi- 
cers of the large corporations elect the boards of directors of 
the different plants and in this way hold complete control. 
Although the different corporations manage their separate 
affairs independently, they are guided by the information 
and the policy emanating from the central officers. The 
large corporation, however, has come to be the more com- 
monly existent form, for it centralizes the control in a 
more marked degree than the corporation referred to above. 
It purchases outright the stock of the corporations which 
are to be absorbed, by issuing the stock of the large corpora- 
tion or by the payment of cash. The affairs of the new 
corporation are governed by a board of directors in quite 
the usual way. The advantages are found in the centrali- 
zation of power and the elimination of the small corpora- 
tions. 

As a protective measure on the part of the small cor- 
porations against possible control or absorption by a con- 
solidation movement of the kind just described, the device 
of the voting-trust has been created. The object is to 
secure a continuous policy that can not be interrupted by 
the sale of shares held by individuals. The method fol- 
lowed is to place a majority of the stock in the hands of 
trustees who are given the right to vote it, while the share- 
holders retain for themselves the privilege of drawing divi- 
dends and making transfers. It is possible that the mi- 
nority shareholders may be done some injustice by a plan 
of this kind, but many corporations have saved their 
organization by this device. 

What in America, and in England to some extent, has 
taken the form of the large corporation has in Austria and 
Germany appeared in a modification of the pool.* Three 
purposes move the producers in these latter States, namely : 
the attainment of high prices, the regulation of the supply, 
* Report of United States Industrial Commission, vol. xviii. 



FORMS OF INDUSTRIAL ORGANIZATION 165 

and a monopoly for each individual capitalist. The form 
which the pool will take depends upon the attainment of 
these objects. The common form is a written agreement 
which involves the regulation of price and output. To 
accomplish this the organization establishes a central sell- 
ing agency with branches, which distribute the orders and 
establish the prices. These combinations are usually na- 
tional in extent, covering the provinces and States of the 
Empire. The severe restrictions upon promotion and 
stock-watering prevent the promoter from following his 
calling as he is accustomed to do in the United States and 
England, consequently the formation of pools has come 
about by mutual agreement among the different producers. 
The propelling force has been the severe competition pre- 
vailing in the different industries. Although the profes- 
sional promoter is not a factor in the organization, never- 
theless some organizing agency is always an element in the 
organization. In most cases the banks are the promoters 
and their officers justify this action by calling attention 
to the difficulty of getting investments and the necessity of 
earning higher rates of interest. Often the banks are 
holders of large blocks of stocks and are represented on 
the boards of directors. In fact so far has the craze for 
organization gone that banks have been established for the 
sole purpose of financiering some new industry. 

Although the large corporations in England are quite 
like those of America, nevertheless, there has sprung into 
existence there a number of combinations known as the 
E. J. Smith companies that differ materially from any- 
thing found in the United States or continental Europe. 
The object of these was the usual one of eliminating un- 
regulated competition and securing for the members a 
higher rate of profit. The basis of these organizations was 
a profit to all, individual ownership and management of 
the plants in the combination. The problem was : how to 
give each owner the control of his plant, guarantee him a 



166 MODERN INDUSTRIALISM 

profit and still keep sufficient control of the output to ac- 
complish these objects. It was agreed that a certain 
minimum cost should be determined, and that no sales 
should be made below a certain percentage of the cost. By 
this arrangement the man who produces at the greatest 
cost will get a fair return upon his business. In fact every 
member of the combination earns a group profit, while 
some earn individual profits varying with their different 
advantages in production. The labor factor was not neg- 
lected in the organization for it was felt that price agree- 
ments could not be kept without some understanding with 
the workers. Consequently, an organization was formed 
among the working people and a contract made between the 
two groups. On the one side employment, good wages, 
and bonuses varying with profits were guaranteed, while 
on the other freedom from strikes, and no labor assistance 
to competitors were conceded. The success of the plan is 
indicated in the rapid organization of other industries 
upon a similar principle.* 

Perhaps in no instance has there been such rapid con- 
solidation of industry as in the case of the railroad systems 
of the United States. The forces at work in this land are 
such as to bring the railroad companies in the near future 
under a few dominating financial interests. With the late 
movements more than half of the railroad mileage is in 
the control of six of these interests. The purpose of the 
earlier combinations was to secure business by the extension 
of lines and feeders to strategic points, but to-day the ac- 
quirement of a railroad by consolidated interests may be 
for the reasons that the railroad touches strategic points, 
or owns terminal facilities. The object of the present 
marked tendency toward consolidation in railway organiza- 
tion is no longer economy of operation, but the avoidance 
of what was rapidly developing into group competition. 

*"For more detailed account see pp. 9-23, vol. xviii, of the Report of 
the United States Industrial Commission. 



FORMS OF INDUSTRIAL ORGANIZATION 167 

The control of the groups demanded ownership or direction 
of the railroads in an entire geographical section of the 
country. A study, then, of the methods employed in se- 
curing such control of railroad mileage should yield a 
number of interesting facts in industrial organization. 

Of these methods five may be enumerated as those 
adopted at one time or another in the process of railroad 
consolidation. They are actual purchase, consolidation by 
lease, holding a majority of stock or bonds, community of 
interests and the creation of security companies. 

(1) The actual purchase of a railroad may be accom- 
plished in three different ways ; first, by the exchange of 
bonds for stock, usually at an increased valuation of the 
stock; second, by the exchange of new bonds for the old 
and the retirement of the stock in the same way ; and third, 
the purchase by cash and the ownership in fee. There 
are many instances when the consolidators do not wish to 
burden the basic company with an increase of bonded in- 
debtedness, but nevertheless expect to get control of the 
property necessary to the completion of the plans. Further- 
more, State authorities may object to the actual purchase 
of one corporation by another. (2) Both of these objec- 
tions are met in consolidation by lease. Without adding 
to the bonded indebtedness or destroying the identity of the 
corporate parties to the agreement, consolidation is effected 
by guaranteeing a fixed return to the holders of bonds and 
stocks, and complete control thus secured by the guarantee- 
ing company. Consolidation by lease requires the consent 
of shareholders and the directors of a corporation, but it 
is possible through the purchase of stock in the open market 
to come into the control of a sufficient amount of it to 
determine the policy of a road, and to get all the benefits 
that accrue from a lease without the financial responsibili- 
ties of the latter. (3) A railroad strong in terminal facil- 
ities and earning power can even dominate the shareholders 
and consequently dictate the policy of the road with but a 



168 MODERN INDUSTRIALISM 

minority holding. As a result of this dominance many- 
abuses creep in, where control is possible by a bare majority 
or a large minority holding, that often disturbs dividends 
and traffic arrangements of the small independent road. 
Independent roads have always proved a disturbing factor 
in the railroad situation not always controllable by the 
purchase of stock or the making of a lease. (4) A novel 
policy has been devised to secure agreement and harmony 
in the field of transportation. The name given to it is 
" community of interest/' a term used to designate the 
representation of one railroad upon the directorate of an- 
other. " This representation, intended to affect the policy 
of the junior company, may represent actual control or 
merely a minority interest as the case may be. Its objects 
at the same time may vary all the way from the entire elim- 
ination of the disturbing element of a rate-cutting road to 
the maintenance of a harmonious railroad policy between 
a number of rivals."* (5) It would appear, however, that 
the " community of interests " just described is but a step- 
ping-stone to a much larger and more extensive consolida- 
tion to be secured through the creation of securities com- 
panies. Such a company organized with a great capitaliza- 
tion would exchange its stock for the bonds and shares 
of the railroads to be acquired. The advantage over the 
" community of interest " plan is in the definite ownership 
and direction of the railroads consolidated in this way by 
those who are financially concerned. 

For the capitalization of a corporation there are two 
bases, one, the property owned by the corporation; the 
other, earning capacity. Both have their advocates. The 
fundamental true one must always be the assets of the 
company; this basis is to-day regarded as old-fashioned 
and in the way of modern financing. The preferred stock, 
however, even in overcapitalized corporations, is supposed 
to represent tangible assets, while the common stock is cov- 
* Report of United States Industrial Commission, pages 3, 4, vol. xviii. 



FORMS OF INDUSTRIAL ORGANIZATION 169 

ered by increased earning capacity, good-will, patents and 
trade-marks in the possession of the individual concerns 
who are members of the corporation. 

From the point of view of organizers capitalization on 
earning capacity is wise because it conceals the state of the 
business so long as there is a normal rate of return. It 
lessens also the danger of popular disapproval, but, per- 
haps more to the purpose, a capitalization always sells at 
a higher rate and the fluctuations are greater, affording 
many opportunities for speculation. In this statement 
lies the real reason for overcapitalization. 

If the blame for this condition of affairs is to be laid 
at any one's door it perhaps may fall with greatest justice 
upon the promoter and underwriter. These representa- 
tives of modern financiering stimulate overcapitalization 
by their zeal in organizing new corporations and by their 
methods of work. The first step made by a promoter in 
the creation of a new combination is to secure an option 
upon the plants that are to form the organization. Having 
done this the corporation is organized, the stock issued to 
owners of plants who were willing to take stock in the new 
enterprise, and in order to pay those who sold for cash, 
he finds it necessary to secure the money from some source. 
It is at this point the underwriter comes in. A bargain is 
made between the promoter and the underwriter, the latter 
agreeing to take so many shares of stock and to advance 
the money upon them. With the cash received from the 
underwriter the promoter pays his cash liabilities, uses 
part of it as a working capital, and retains part as his pay. 
Large inducements are held out to purchasers of shares, 
a bonus of common stock being given for each share of pre- 
ferred that is bought. The underwriter undergoes a con- 
siderable risk in advancing the money, for he practically 
agrees to buy the securities, consequently his pay is large. 
With the stock bonuses to shareholders, large pay to 
the promoter and underwriter, the modern corporation 



170 MODERN INDUSTRIALISM 

issues from its organization period highly overcapital- 
ized. 

In the preceding pages have heen traced the forms of 
capital organization from the partnership to the gigantic 
corporation. We now turn to the labor factor in industry 
whose organization will be presented in the remaining 
pages of the chapter. 

Without going into the history of trades-unions the 
reasons for their development may be presented in a 
sentence: the necessity of protecting the interests of the 
laborer in the matter of hours, wages and suitable working 
place by organization. The weakness of the individual 
workman as a bargainer in the labor market stands out in 
marked contrast to the corporation, company or business 
firm. As an organization the trade-union desires to place 
labor on a more equal footing with capital in the matter 
of bargaining. This alone is perhaps sufficient justifica- 
tion for the formation of the unions that now exert such a 
wide influence upon modern industry. 

The natural order of their development has been from 
the local union to the national, and from that to the federa- 
tion of all labor organizations. The local union is com- 
posed in two ways : one, as a society of laborers of the same 
craft, the other as a union of the workers engaged in a 
variety of trades. The first is found in the larger cities, 
the second in towns and villages. Running through the 
organization of labor are many lines of affiliation and rela- 
tions. Thus the local union, composed as it is in large 
cities of the men of one craft, perhaps in a distinct part 
of the city, may be a member of the central union, allied 
trades-council and of a trades-assembly in addition to its 
membership in a national union and a federation of labor. 

The central city union has the notable ambition of 
organizing the laborers of a municipality in the labor move- 
ment. The ideal condition of such an organization is ob- 
tained when every laborer is a member of a local union that 



FORMS OF INDUSTRIAL ORGANIZATION 171 

is affiliated with the central body. From each local "union 
come delegates to the central city organization who meet 
in much the same way as the House of Representatives of 
Congress does, business is conducted by the same general 
rules, presented, referred to committees, reported upon and 
finally discussed before action is taken by the general body 
of the delegates. The object of this part of the trade-union 
movement is to organize, educate, and to defend the labor- 
ers. The first is accomplished by agents, the second by 
pamphlets, tracts, speeches and a labor press, while the 
third object is secured through the united labor organiza- 
tions by the means of money, sympathy, and the boycott. 
A more powerful organization still than this great body of 
city workers is the allied trade-councils composed of dele- 
gates from each union representing industries that are 
closely related to each other, as the crafts of the carpenter, 
brick-mason, lather and plasterer. The object of the 
alliance is frankly stated to be the making of the grievances 
of one craft the concern of all the others in the alliance. 
The weapon used in such conflicts is the sympathetic 
strike, although the organization of the business agents 
(" walking delegates ") of each union in a board of dele- 
gates makes possible the settlement of difficulties with 
greater ease than in the case where the organization is not 
so complete. As a usual thing, however, the allied trade- 
councils send delegates to the central city union. 

The trades-assemblies have no such economic basis for 
their organization as that of the allied trades-councils. The 
bond which unites the members of an assembly, composed 
as it is of delegates of all unions, is the " unity of the work- 
ing classes," while the actual economic activity is limited 
to the boycott. Such organizations may nevertheless have 
a considerable political influence by using a group of 
voters against a specific candidate. While the allied trades- 
council, the central city union and the trades-assemblies are 
alliances and affiliations of different organized crafts in 



172 MODERN INDUSTRIALISM 

local communities, the national unions are territorial or- 
ganizations of the local unions of the same trade. The 
mobility of labor in many trades actually compels the 
organization of national unions, for there is a wide-spread 
competition of workers with each other except in a few 
of the highly localized industries. In wide-spread indus- 
tries anything like collective bargaining can only be accom- 
plished by the existence of trade-unions national in extent. 
The national union aspires to unite all the local unions 
of its trade by organization, mutual insurance and support, 
financial and advisory, in times of strikes. In time, the 
national organization officers and committees will control 
the strike policy of a trade. This undoubtedly tends to 
reduce the number of such conflicts. 

In addition to the local and national organizations of 
crafts and trades there have been other attempts to bring 
the wage-earners of a country under a single jurisdiction. 
Such attempts are called federations when they take a defi- 
nite form. The largest and most influential of such or- 
ganizations is to-day in the United States based upon the 
principle underlying the union of the American States. 
" Each trade is independently organized, not, it is con- 
ceived, by virtue of any authority emanating from the 
whole, but by its own independent power. Each trade 
organization retains its sovereign control of its internal 
affairs, and only joins with the others in a federal organiza- 
tion for the consideration of common interests and the 
promotion of the common good."* With the wider needs 
of labor organizations in view the federations desire the 
establishment of collective bargaining, the use of the union 
label and legislation favorable to the eight-hour day, fac- 
tory conditions, and the restriction of the employment of 
women and children. 

The policies of trade-unions, whether organized as 
local societies, allied trade-councils, or national bodies, may 
* Report of the United States Industrial Commission, vol. xix, p. 798. 



FORMS OF INDUSTRIAL ORGANIZATION 173 

be roughly classed into those that, first, tend to strengthen 
the strategic control of individual workers in dealing with 
their employers, and second, the ones which attempt to 
secure mass settlement of trades questions. Between the 
two classes of unions is a great difference in the general 
methods followed to accomplish their ends, but of some 
policies it may be said that trade-unions of both types 
accept them. 

Trade-unions that still believe in individually bargain- 
ing, as a means of settling wages, endeavor to strengthen 
the position of their members by limiting employment to 
those who are members of the union, reducing the number 
of apprentices, restricting the output, and conditioning the 
use of machinery. These smack in a large measure of 
medieval regulation, but the modern trade-union has large- 
ly given up such interference with production and now 
endeavors by what is called the " common rule " to advance 
the interests of its members. The " common rule " con- 
sists of the standard rate, the normal day and collective 
bargaining. The trade-union that follows such a policy 
demands the maintenance of a minimum wage and a fair 
day with good conditions in the shops and factories. How 
much more than a minimum wage shall be paid is to be 
determined by " collective bargaining," a system requiring 
for its highest development the organization of both capital 
and labor. 

The common rule, where established, is the basis of the 
relations existing between employer and employee. It 
tends to weed out the old-fashioned and stupid firms and 
to introduce the newer forms of business enterprise, for 
under it the captain of industry must have the best work- 
men, the best equipped factory and the most advantageous 
forms of industry in order to increase the output and earn 
dividends. As a consequence the common minimum wage 
automatically improves the service, introducing inventions, 
and better management, and leading to the collective bar- 



174 MODERN INDUSTRIALISM 

gaining as the means of securing the most satisfactory 
arrangements with workers. This device may be secured 
through an informal agreement between local business 
houses and their employees, or by written agreement ex- 
tending through several years and in some instances in- 
volving workers over a wide territory. This last phase 
develops when the industry is national in extent and the 
union organized throughout the country. Many forms of 
conference boards are developed to carry out the principle 
when once accepted, which, when done, makes the unions 
and the employers partners in industry. When both are 
thoroughly organized and in agreement the features of the 
old medieval guild are produced in the control of the con- 
ditions of labor, the output and the sale of commodities. 

Certain groups of workers do not believe that the or- 
ganization of industry can be carried on under the present 
employers' system satisfactorily to the wage-earner, and 
they, in consequence, suggest a form in which the entre- 
preneur no longer appears, but production is carried on 
under the direction and effort of the laborers themselves. 
This is called cooperation, and since it has actually taken 
form and in some parts of the world made rapid progress 
some recognition should be accorded. 

Where organizations have appeared under a coopera- 
tive principle they have taken one of three forms, some : 
times known as consumers, productive and credit coopera- 
tion. Societies of consumers are established to buy and sell 
commodities the profits from which are to go to the mem- 
bers of the associations. Such organizations have been re- 
markably successful creating an organized market for the 
products made by productive societies. The early establish- 
ment of scattered and somewhat unsuccessful productive 
cooperative societies discredited a movement that had the 
unusual difficulties of lack of capital, and organization, 
and an uncertain market to contend with. Nearly every- 
where the movement toward productive cooperation should 



FORMS OF INDUSTRIAL ORGANIZATION 175 

have succeeded the consumers' societies by as many years 
as it preceded it. These successful establishments of co- 
operative stores make a certain market, while the lack of 
capital has been met by the changed form of the productive 
part of the movement in the labor copartnership plan. 
This recognizes the desirability of both capital and labor 
and provides a system under which a " substantial and 
known share of the profit " goes to the laborers in addition 
to their wages. Every laborer also has the right to invest 
a part of his earnings in the stock of the concern, which 
gives him a vote in determining the policy and officers of 
the plant. The system has been widely practised in Great 
Britain, and had in its combined societies over $7,000,000 
of capital and an annual product equal to $15,000,000 at 
the close of the century. In the older countries, particu- 
larly Germany, credit-banks, cooperative in type, have 
been created. These have, by loaning small amounts, 
either on personal notes or collateral, rendered a great 
service in bridging over difficulties in the business of 
small producers. Many a debt-ridden and usured com- 
munity has freed itself from the toils by gathering its 
capital through the medium of cooperative banks. 

Thus far the cooperative principle has reached but a 
small part of the business of the world in its organization. 
The corporation as a stimulus to capital investment brings 
the organization vast sums of money and the control over 
industry unequaled by any other form. Successful, too, 
as has been productive cooperation in its new form of 
labor copartnership, the trade-union still remains the 
dominant and prevailing factor in labor organization. 
These then, the corporation and trade-union, must continue 
to be the great forces in modern production, but cooperation 
may in time materially modify both the organization of 
capital and labor. 



CHAPTER V 



COMMERCIAL INSTITUTIONS 



The industry of to-day is typified by its unity. 
Through it run lines to every part of the world binding 
the whole together in a gigantic organization. This unity 
is shown by the growing interdependency of trades and 
markets, the long processes of production involving many 
industries and agencies and the close dependence of them 
upon each other. Capital in the newer forms of produc- 
tion becomes more and more specialized, while the specula- 
tive element in the creation of goods for future markets 
grows increasingly greater. From the extraction of the 
raw material from the earth to the disposal of the finished 
goods to the consumer by the retailer, there is at work a 
minute and highly organized machine through which 
passes an endless chain of commodities on their way to the 
final user. 

The railroad, telegraph, telephone and steamship have 
accomplished the herculean task of widening the market. 
The contrast of the earlier days of a place, where trades- 
men met to exchange goods, with the world-wide groups of 
men dealing in the staple articles of a world's market to- 
day brings vividly before the mind the difference not only 
in the field but in the machinery of modern exchange. As 
of old the transfer of ownership in goods and commodities 
takes place between individuals, sections and nations 
on the basis of division of labor. To accomplish this trans- 

176 



COMMERCIAL INSTITUTIONS 177 

fer of title with the precision, judgment and efficiency 
necessitated by the requirements of an enlarged produc- 
tion demands a highly organized system of commercial in- 
stitutions. The problem assumes gigantic proportions : how 
are the purchases of China in America to be used to pay 
the debts of the Yankee in England, or how is an agricul- 
tural community buying machinery from a manufacturing 
group to pay for its utensils with wheat when the manu- 
facturers could by no means consume so many bushels of 
grain ? And still in a simple, efficient way the purchases 
and sales of different groups and nations are set off against 
each other to the entire satisfaction of the producers. 

Not only, however, in the field of the finished com- 
modity market, but in the various stages of production is 
there a constant change of ownership from one producer to 
another. The lumberman buys logs from the logging com- 
pany, the contractor purchases his materials from the lum- 
ber company and so on as the article advances to its finished 
stage. The modern system provides for a local buyer or 
shipper in the region of the raw material to forward the 
materials to the consumption centers. Sometimes the 
transporting agencies act in the capacity of forwarders, 
especially when the raw material is a staple and salable 
in the world's market. At the center of consumption are 
the receivers of the materials in the guise of commission 
men, warehouse owners and wholesalers, who act as regu- 
lators of the supply placed in their hands from the primary 
sources. By degrees the materials reach the manufac- 
turers who produce the articles desired by the consuming 
public, but before the product can reach the final pur- 
chasers the distributor of the large and the retailers of the 
small must do their part of the work. The distributors 
consist of company factors, wholesale dealers, and middle- 
men. It is the purpose of this group to carry the manu- 
factured product well on the way to the consumer. They 

are dealers and forwarders of large quantities and in a 
13 



178 MODERN INDUSTRIALISM 

measure take from the manufacturer the necessity of deal- 
ing with the retailer. The factor sells on commission, often 
turning the bills and accounts he gets to the producing 
company for collection ; the wholesaler, on the other hand, 
buys direct, keeps a large stock, pays cash or short-time 
paper for his goods and conducts his business independently 
of the manufacturer. The commission man sells on orders 
by samples often representing no particular manufacturing 
company, but acting as a free-lance distributing agent. 
The retailer is the last distributing agent in the movement 
of goods, but his evolution has been the most marked of 
any of the commercial agents. Beginning as a peddler 
passing from door to door with his stock of goods he made 
his appearance in the days of the fair in the booth and later 
came to occupy a permanent location in the market-place. 
As population grew in density and wealth the retailer came 
to view as the owner of the general store, which time has 
evolved into the single-line business and the department 
store. 

/0\iany modifications have taken place in the old system 
of product distribution. The growth in size, capital and 
equipment has necessitated a somewhat different system to 
handle the increasing product. The change has taken place 
in the selling departments of the trade. Thus many manu- 
facturing concerns have created selling departments con- 
trolling the product as far as the retailer, and in some 
instances, even placing the product in the hands of the 
final consumer. As a consequence the middleman is losing 
his importance and the old method of jobbing gradually 
eliminated as a system of distribution. With the develop- 
ment of selling departments in manufacturing plants, the 
retailer has gained in importance in those industries in 
which the manufacturer does not reach the final consumer 
in this organization. The movement just indicated is 
markedly represented in the concentration of retail trade 
in department stores. Possessing a large capital the 



COMMERCIAL INSTITUTIONS 179 

owners of a department store are enabled to deal with the 
makers of commodities and to earn in addition to the 
profits of a retail concern the commissions of middlemen 
and the interest of the bankers. The system, moreover, has 
the further advantage of directly checking and directing 
demand. With such control over production the depart- 
ment store tells the producer what to make, and when, and 
how to deliver it. With modifications of the kind described 
in the paragraph it is indeed a changed system of distribu- 
tion that presents itself at the beginning of the twentieth 
century. 

To rest the corner-stone of the structure upon the selling 
agencies without taking any thought of the new function- 
ary, the speculator, and the extended and intricate system 
of credit instruments would be to lose sight of the most 
essential of the commercial institutions. The widened 
market has increased the chances of risk and possible loss 
in business, while the enlarged output and extended areas 
of sales demand instruments of exchange -that will make 
the transfer of titles easy and efficient. The first are met 
by the speculator and the speculative market, the second 
by banks, bill brokers and exchange dealers. 

Losses to industry arise from the risks due to produc- 
tion itself and those that come from the fluctuations of the 
market in the prices of raw material and finished product. 
The risks of production arise from the destruction of 
property through fire, water, and wind, the mistakes of 
method, miscalculation in reference to the output on the 
market, breakage and small product due to incompetent 
service, bad management, fraud and the indemnities for 
loss of life and limb in factory and machine production. 
These are borne by the individuals concerned, falling 
jointly upon the laborer, capitalist and entrepreneur. In a 
measure such losses are insurable, for they do not occur at 
one time neither do they fall upon a producing class, but 
upon members of the class. The fluctuations of the market 



/ 



180 MODERN INDUSTRIALISM 

which have materially increased with its widened scope 
create continuous risks, which, unlike the hazards of pro- 
duction, fall upon an entire class. The group of risks con- 
nected with the production were spoken of as insurable, 
but the losses due to the fluctuations in price of raw mate- 
rial and finished product can not be so met. 

A special class of men have come into the industrial 
world for the purpose of assuming the risks of fluctuating 
prices and relieving the producing agents of the uncer- 
tainty of the future. The incentive which has brought the 
speculator to the rescue is the fact that with every risk of 
loss, speculatively speaking, there is a chance to gain; for 
this chance the speculator is willing to assume the risk. 
His particular function is to localize industrial risks, re- 
lieve the producer and the consumer from the necessity of 
carrying large stocks by guaranteeing future supplies, and 
in some instances by cutting down the expenses of handling 
materials and products. For this he asks a payment of a 
net profit upon capital and upon the cost of business capac- 
ity. Whether he will receive such compensation depends 
upon his ability to foresee future changes in the market. 

" The speculator of to-day makes his money," says 
President Hadley in the chapter on Speculation in his book 
entitled Economics, " chiefly by taking advantage of differ- 
ences of price between different times, rather than be- 
tween different markets. It is not so much the difference 
in the price of wheat in Chicago and Liverpool which 
furnishes the source of his profit, as the difference between 
its price in Chicago from month to month. If the specula- 
tor foresees a rise, he buys wheat to-day with the hope of 
selling it at an advance. If he foresees a fall, he contracts 
to make future deliveries at to-day's prices, in the hope that 
he can secure the means of filling those contracts at rates 
low enough to leave him a profit. This is the type of trans- 
action which forms the bulk of business on all the leading 
exchanges of the world. 



COMMERCIAL INSTITUTIONS 181 

" When such speculation anticipates an actual demand, 
it is of great service to the community. The long time 
which elapses between production and consumption, be- 
tween contracts and their fulfilment, makes it extremely 
important to have responsible men to anticipate the wants 
of the market and take the risks on their own shoulders." 
Continuing, President Hadley says: " If I wish to build 
a house, I ask a builder to give me an estimate of the cost. 
He in turn goes to dealers in lumber and other materials 
and asks them to tell at what price they will deliver him the 
goods when he wants them. In this way he knows approxi- 
mated what it will cost to build the house. The lumber 
dealer probably contracts to deliver lumber which is not 
now in his possession. But if he understands his business 
he knows more accurately than any one else what its future 
price is likely to be. He habitually makes a profit by his 
superior knowledge ; but this profit is far less than the loss 
which would be involved if every builder, at the time of 
making a contract, had to buy all the lumber he was going 
to want six months hence, leaving his capital (and the com- 
munity's capital) unproductive for that length of time, 
besides being subject to the dangers of loss by fire." 

Suggestive as is the example just cited, it does not, how- 
ever, give a definite impression of the vastness of the sys- 
tem, and how dependent the speculator's function is upon 
the existence of a speculative market in which stocks and 
commodities can be sold for cash at any time for the prices 
prevailing on the exchange. To sell at his pleasure, to buy 
when he desires, are the necessary privileges of the specula- 
tor. It is only when he has such a market that the specu- 
lator can perform his functions. 

It is through the sale of " futures " against raw mate- 
rials that the great manufacturers offset the possible loss 
that may come to them as producers by the fall in the prices 
of their material. The system now followed protects 
them against the fall of price in the materials by the 



182 MODERN INDUSTRIALISM 

speculative price received for the " futures " and against 
a rise by an increase in the value of the manufactured 
commodities. Thus it is the custom of the millers in the 
great flouring centers to purchase grain and store it in ele- 
vators receiving therefor grain receipts. Against this grain 
they sell through their brokers " futures " equal in amount 
to the grain purchased and stored in the elevators ; mean- 
time the production of the flour from the stored grain goes 
on as though the " futures " did not exist. The finished 
product is then sold and the wheat repurchased on the 
speculative markets to make deliveries against the " fu- 
tures " bought at the beginning of the transaction. Settle- 
ment is made by paying the difference between the price 
received and the price paid for " futures." Thus the miller 
has protection from fluctuation of price and a guarantee of 
profit on his manufacturing. He has in fact insured 
against market risks. The risk of possible loss is taken by 
the speculator who buys and sells the " futures." The 
speculator then performs his function by adjusting the 
fluctuations of prices in the same market at different times. 
He endeavors to equalize the supply by anticipating the 
needs of the market. In so far as he carries out this func- 
tion so far does he relieve production from the constant 
fluctuations of market prices and secure for it stability of 
profit.* 

Long before the speculator was recognized as a special 
functionary and the speculative market developed in the 
modern sense there was organized the machinery of ex- 
change by which titles of ownership are transferred. Such 
machinery includes a money system, banks, bill-brokers 
and exchange merchants, and a stock exchange, together 
with various credit devices necessary to the conduct of 
business. To classify these is to divide them into titles 
to property and the agents that carry on the transfers. 

* For a further discussion of speculation see in particular Hadley, 
Economics, p. 97, and Emery, American Economic Association's Publica- 
tions, February, 1900, p. 103. 






COMMERCIAL INSTITUTIONS 183 

Among the titles by which property is transferred be- 
tween individuals and corporations throughout the world 
are gold and silver coin, government paper money, bank- 
notes, checks, drafts and bills of exchange. These instru- 
ments must, with the exception of gold and silver, have a 
basis, for in no instance can the others do more than trans- 
fer title from one person to another, while the coin has the 
power of extinguishing debt. Consequently, we may say 
that money in such forms acts as the settlement basis of 
commercial obligations. That is, the great mass of credit 
instruments must have a basis of solvency if it is to act as 
circulating medium. The presence of a true money in a 
community furnishes such a basis by granting to the skeptic 
the option of money or the credit instrument, a choice which 
materially stimulates the extensive use of credit instru- 
ments. The fact that a metal serving as a money settles 
the final balances between individuals of the same indus- 
trial group, different groups of the same nation, and differ- 
ent countries of the world, is equivalent* to its being used 
in paying every debt incurred in and between these differ- 
ent groups and nations. Moving as it does in such settle- 
ments, the metal money measures the value of every 
commodity as it passes through the gates of trade and 
commerce. It must therefore act in the large capacity of 
a reserve of " commercial obligations." 

Fundamentally, however, credit itself must rest upon a 
still wider foundation than that of the reserve used to make 
final settlements of commercial obligations. The obliga- 
tions arise and have their existence in the exchange of 
goods, but only through the possibility of the exchange of 
goods against goods is the community able to grant present 
goods for future payment. In other words, its power of 
payment depends largely upon the possession of capital 
which is or will be in its hands. Credit thus comes to be 
the means by which specific forms of goods are changed 
into a general command over goods. As the greater num- 



184 MODERN INDUSTRIALISM 

ber of transactions are made on a credit basis money plays 
but a minor part in the great field of commerce, that part 
being, as already suggested, the reserve against demands 
for the exchange of goods against money, as in a time of 
panic, instead of goods against goods as seen in the ordi- 
nary movement of trade. 

Outside of government money, banks are the agents 
through which the titles to property known as notes, checks, 
drafts and bills of exchange are issued. A definition which 
includes this conception of a bank is that a bank is an in- 
stitution which buys and sells titles to capital. Without 
the bank the titles accompanying every sale and trans- 
action could not be passed from debtor to creditor, from 
seller to buyer. " Every exchange of property," to quote 
the words of another, " is accompanied by two papers : 
one is given by the seller to the buyer, which is a certificate 
that the property described in it has passed from the pos- 
session of the seller to that of the buyer, and is called a 
bill of sale, which vests the title to the property in the 
buyer, the other is given by the buyer to the seller, and is 
a title to an equal amount of the property of the buyer, 
or some other party, and is called note, draft, check, bank- 
note, etc., as the case might be." * The transaction be- 
tween the parties is then completed, but the bank now enters 
as a factor and makes it possible for the seller to secure 
the return to which he is entitled. The bank, then, bridges 
over the gaps in production, which in the modern industrial 
organization are more numerous and shorter in time than 
under a less organized regime. It further collects titles 
to the capital of the community, permitting, in the judg- 
ment of the managers, the most deserving to use them. 
The basis of such credits is the goods of the community; 
the credits which are created by their production are 
bartered and set off against each other through the agency 
of the banker. The balances thus created are paid in 
money. 

* Walker, J. H., Money, Trade and Banking, p. 34. 




COMMERCIAL INSTITUTIONS 



185 



In performing its duties in the industrial organization 
a bank may carry on three functions known as those of 
deposit, loan and discount and issue. To begin business 
a commercial bank must have some capital, but the great 
function of a bank would be but poorly performed if a 
large fund of credits was not forthcoming for the use of 
producers and traders. Consequently a bank receives titles 
to capital in the form of gold and silver coin, paper money, 




The Bank of England, London. 



bank-notes, checks and drafts for safe keeping, which, in 
addition to its own power of extending credits on the basis 
of goods, permits it to grant loans and discounts to those 
who can give satisfactory evidence of the ownership of the 
titles to capital. Two kinds of deposits are thus created: 
one due to the placing with the bank money and demand 
obligations upon other banks, and the other brought about 



186 MODEKN INDUSTRIALISM 

by the making of a book credit through the discount of 
commercial paper. Through this latter process goods in the 
hands of the manufacturer, or those sold to a merchant, 
but not paid for, may serve as the basis of credit ; the bank 
in that case extending to the borrower the right to demand 
payment at once. Thus a special form of property has been 
changed into a right to demand a general title to property. 
Against the deposit created by a book credit, or other- 
wise, the holder may draw demand paper upon it called 
checks, or if he wishes to make payment in a distant city 
or foreign land he may buy with his check or part of his 
deposit a draft upon banks elsewhere. The draft be- 
comes by this purchase a direct obligation of the bank and 
in consequence has a wider circulation and acceptance than 
the personal check of the depositor. In some communities, 
however, the bank credit system has not been developed 
and the people demand, instead of the check system, the 
direct obligation of the bank in the form of notes. So far 
as banks are permitted to issue notes this form of bank 
credit meets the requirements of a community, but they 
do not possess the great merit found in the expansion and 
contraction of deposit accounts. In their essence both 
checks and notes are direct obligations of the banks and 
must be paid upon demand. The bank is, then, forced to 
stand ready to pay these demands in money, the option 
resting with the holder of the note or check. In conse- 
quence the banker must keep on hand a sum of actual 
money that will in his judgment meet the demands for 
money. This is called the banker's reserve. It matters 
but little to the bank whether the seller of commercial 
paper or the borrower of a loan receives a book credit or a 
payment in the notes of the bank. The option ought to 
rest with the customer. In the large centers the matter 
has been settled in the acceptance of the book credit, 
which meets the wants of the commercial world better 
than the notes. 



COMMERCIAL INSTITUTIONS 187 

" Under every system of banking, whether that in 
which the reserve is kept in many banks, or one in which it 
is kept in a single bank only, there will always be a class of 
persons who examine more carefully than the busy bankers 
can the nature of different securities (which are the evi- 
dences of titles to capital upon which loans and discounts 
are made) ; and who, by attending to only one class, come 
to be particularly well acquainted with that class. And 
as these specially qualified dealers can for the most part 
lend much more than their capital, they will always be 
ready to borrow largely from bankers and others, and to 
deposit the securities which they know to be good as a 
pledge for the loan. They act thus as the intermediaries 
between the borrowing public and the less qualified capital- 
ists; knowing better than the ordinary capitalist which 
loans are better and which are worse, they borrow from 
him, and gain a profit by charging to the public more than 
they pay to him."* The bill-broker thus supplements 
the work of the banks and makes it possible for many firms 
to dispose of their commercial paper at all times without 
waiting upon the discount committee of the bank. The 
business of buying and selling commercial paper requires 
a wide knowledge of business conditions and the standing 
of commercial houses in order to carry on the work re- 
quired of that business. The function fulfilled is not that 
simply of buying and selling paper in a single city, but the 
larger broker acts as a distributor of capital. In doing 
this the broker receives money from country banks 
to buy paper for them at a discount, from other sections 
come bills offered for discount. It does not always happen 
that the two movements coincide, so that the broker finds 
it necessary to send the bills to other cities in order to sell 
all the paper entrusted to him. The system now pretty 
well established, in which the country banks deposit their 
reserves and surpluses in large cities, receiving upon them 
*Bagehot, Lombard Street, p. 281. 



188 MODERN INDUSTRIALISM 

a small interest, tends to restrict the work of the bill- 
broker to the larger cities ; nevertheless the function filled 
by him is an important one in the circulation and distribu- 
tion of titles to capital. 

The wide distribution of banks over an extended area 
demands facilities that will unify the banking organiza- 
tions and make easy the exchange of checks, drafts and 
bills of exchange arising from the continuous flow of 
products from one region to another. This was found to 
be particularly true in the large cities, where the constant 
acceptance of bank instruments drawn upon various banks 
required some clearance system. To cooperate in the settle- 
ment of the amounts credited and debited against each other 
in a city was only a question of time. So there has ap- 
peared in the larger industrial centers throughout the world 
an organization known as the clearing-house. Meeting 
at a central place the banks of a city have brought to it 
their claims against each other and settle them by paying 
the differences. In this simple plan the clearing-house 
officers act as the directors of the clearings and trustees of 
the moneys in their hands during the brief period of pay- 
ment of balances. During a single year the clearings in 
the New York association amount to hundreds of billions 
of dollars ; the actual payment of money to meet the bal- 
ances is but a small part, about four per cent, of the actual 
transactions. The saving in time and money to the com- 
munity where such an organization exists is very great. 
The work of the organization is by no means limited to 
the clearing of balances between members, for it is rare 
that all the banks of a city are members of the association, 
but they are permitted to clear through banks that are 
members ; out-of-town banks which have correspondents in 
cities where clearing-house associations exist, have their 
checks and drafts brought for settlement to the clear- 
ing-house. The result of this widely extended clearing 
system is to materially facilitate the movement of 



COMMERCIAL INSTITUTIONS 



189 



goods and the settlement of debts and obligations. In 
times of financial disturbance the clearing-honse associa- 
tions have materially aided in calming the public mind by 
the system of combined reserves. During such a period 




The New York Clearing-house. 

there is a great temptation for the strong banks to cut down 
their loans and discounts and hold their reserve intact, 
but a panic may be precipitated by the failure of the 
weaker banks. By combining the reserves, placing them 



190 MODERN INDUSTRIALISM 

under the control of a committee and issuing what are 
called loan certificates against securities, the association 
provides a means by which balances can be paid and the 
cash reserves of the banks saved for emergencies. The 
effective work of this plan in the United States is ex- 
emplified in the experiences in the years 1861, 1884 and 
1893. 

The mutual indebtedness of commercial centers due 
to the constant flow of goods between them gives rise to bills 
of exchange as a method of balancing these obligations. 
Thus at each business center are created debts and credits 
due to the commerce and trade of the community. Bills are 
offered by those who have manufactured commodities and 
have sold them, and purchased by those who have pay- 
ments to make in other cities. A market for exchange bills 
is created and with it comes the exchange broker who 
buys and sells exchange. In many instances the banks pur- 
chase exchange bills, creating in a domestic or foreign city 
a credit against which they sell drafts payable out of the 
credit secured through the bills of exchange. Usually the 
bank sends a bill of exchange which has been purchased 
to its correspondent for collection and as already stated 
exhausting the credit by the sale of drafts. In the evolu- 
tionary process constantly at work in the market the banks 
have come to be investors in bills of exchange, holding them 
until maturity and earning thereby the interest. The bill- 
broker appears as a go-between in the relations of drawers 
of bills and the purchasers of them. The purchase and sale 
of these instruments rest upon the exchange of commodi- 
ties between communities and nations, the international 
trade in securities, the issue of travelers' checks and bank 
drafts. 

At times unusual conditions, such as currency changes, 
overproduction of metals, great financial transactions, il- 
lustrated in the purchase of the Panama Canal franchise, 
commercial crises and heavy crop movements change the 



COMMERCIAL INSTITUTIONS 191 

character of the exchange movement. The only reason 
that the instrument rather than the money is used to settle 
the debts of communities against each other is because 
the latter is more expensive, adding to the cost insurance, 
freight and loss of interest. There are, however, times 
when the demands for exchange are greater than the supply 
and the price then goes up to the point where it will be 
cheaper to ship the currency in the case of domestic ex- 
change or gold in the case of foreign exchange. A result 
of this kind is due to what is called an adverse balance of 
trade. Such conditions may be traced to a decline in ex- 
ports due to increasing prices, a rise in imports for the 
same reason, or the existence of a permanent international 
obligation in the form of payment for freights, insurance, 
dividends, interest or travelers' expenses. The settlement 
of international debt in its final form must be through 
the transfer of goods, for the bills of exchange and drafts 
are evidences of ownership alone and are used by indi- 
viduals in the payment of personal obligations. 

As a result of the rise of the corporation and its en- 
largement, the combination, vast amounts of securities in 
the form of stocks and bonds have been placed upon the 
market for sale. With the growing importance of these 
industrial organizations exchanges have been developed to 
facilitate dealings in securities. The trading in such 
forms of property has become international and materially 
affects at times the foreign exchange between nations, and 
at others produces in the domestic market influences that 
go a long way toward changing financial conditions. To 
pass by so potent a factor as the stock market and its ma- 
chinery would be to overlook an important element in the 
system of exchanges. 

A stock exchange is an organization of individuals 
formed for the purpose of listing securities and for facili- 
tating the sale and delivery of stocks. It has been termed 
a place where incomes are bought and sold; in fact, it 



192 MODERN INDUSTRIALISM 

may be regarded as the barometer which tells the investor 
the values of stocks and bonds. Through its agency cor- 
porations are enabled to sell their shares and to get the 
money capital to conduct their business, and individuals 
possessing such evidences of ownership may on the other 
hand turn them into cash whenever it is necessary in their 
judgment to do so. Nearly all the great industries are 
now conducted by corporations and companies, so that 
their shares constitute one of the most important forms of 
investment. The stock exchange has come into existence 
because of a demand for trade facilities that will adjust 
differences of opinion in reference to future values of 
corporation securities and give the purchaser some idea of 
values. 

The passage of a stock or bond from its issue to its final 
purchase by an investor is a long and stormy one. There 
appears first the promoter who organizes the company, then 
the banker who provides some money for expenses, the 
corporation and underwriting syndicate follow before the 
incorporation. When this stage is reached the stock certifi- 
cates are issued and the sale begins on the "curb," fol- 
lowed later by the listing of the stock on the exchange. 
The stock-broker buys the securities and in order to extend 
his business hypothecates them at a bank for loans and 
finally through the agency of the broker the security finds 
a resting place in the strong-box of the investor, to reap- 
pear, however, when the market price rises. In these 
transactions the bank and the clearing-house perform im- 
portant functions. Without the aid of the former a broker 
would be limited in his transactions to his own resources, 
but through the extension of temporary credit to him by a 
bank he is enabled to materially expand his business. This 
is done by over-certification of checks and the granting of 
call-loans on securities. In the second place, the clear- 
ing-house now organized to facilitate the transfer of stocks, 
increases the power of the broker to do a large business 



COMMERCIAL INSTITUTIONS 193 

with his capital hy offsetting debts and credits created by 
the purchase and sale of securities against each other. 
The settlement is made by the payment of balances in 
stocks and money. 

The trade in securities has become world-wide largely 
through arbitrage and foreign selling. Men are now en- 
gaged in buying and selling the same securities upon 
different exchanges at practically the same time. The 
purchase and sale of stocks by foreigners has greatly in- 
creased. Such transactions create national credits or 
debts and affect the foreign exchange-rate. In final settle- 
ment gold moves from one land to another. 

From this and other points referred to in the course of 
this chapter it appears that the civilized world is dove- 
tailed and linked by the vast system of exchanges now 
existent. To further facilitate it man has resorted to a 
variety of ingenious devices that have materially enlarged 
the field and functions of the market.* 

Despite the elaborate exchange system now in vogue 
disturbances are constantly occurring in the market that 
threaten the whole industrial structure. In the great over- 
production and contraction of credit the banks fail to 
bridge the gaps between the different stages in production. 
The speculator foregoes for a time the exercise of his func- 
tion and great difficulty is experienced in balancing the 
products of region against region. Sudden or severe con- 
traction of credit creates a flurry in Wall Street, loans on 
call are asked for and vast amounts of stocks are thrown 
on the market for sale. As the public confidence declines 
men seek to secure themselves against loss by turning their 
goods into money, interest rates for money increase under 
the growing demand for that commodity, there results a 
fall in prices with consequent failure to meet obligations 
based upon the old prices, wages decline and employment 

* For wider information on the machinery of the speculative market 
the reader should see Pratt's Wall Street. 
14 



194 MODERN INDUSTRIALISM 

of workers is affected. Then comes a period of readjust- 
ment to the new conditions and the entrance upon another 
cycle of trade and expansion. 

Aside from ignorance of changes in the costs of produc- 
tion of money metals, these disturbances are due in part 
to what is being done in the great industrial organism, 
to the narrowing of the spheres of activity and the 
constant shifting of demand through fashion, purchasing 
power and industrial conditions. Specialization affects 
the number of producers and changes their relations to 
the market and the producing world. But perhaps the 
principal reason these industrial crises come and go is 
that the machinery of management has not grown equally 
with the technique of production. To-day the basis of 
business is largely guesses as to what will happen. It is 
small wonder then that misdirected production results 
and that the whole basis of the credit system is deranged 
by changing its basis through overproduction. The better- 
ment of the situation calls for wider knowledge of the in- 
stitutions of exchange. Mobility of capital has been se- 
cured through banks, bill-brokers and the use of credit in- 
struments, while the capital itself has been materially 
increased through advantageous systems of exchange, but 
the individual producer lacks any comprehensive view of 
the market and exchange relations. It is here that future 
commercial institutions will be strengthened by wider 
knowledge and a greater dissemination of information 
about market conditions. Then production and wants will 
more nearly correspond, and the extension of credits, no 
longer out of joint with needs of the time, will not disturb 
market conditions. 



PART III 
ADMINISTRATION 



CHAPTER I 

FUNDAMENTAL QUESTIONS 

At every stage of its history an industrial organization 
is forced by the conditions of existence to meet problems 
of a serious nature. These are the outcome of its evolu- 
tion, of the adjustment of new methods to the old, or the 
elimination of the old by the newer ways. A dynamic 
society is the scene of a continual warfare between the ad- 
vocates of different forms of industry and government, 
of sections whose interests for the time being conflict, of 
laborers, of employers, of all, in fact, who seek advantage, 
advancement or the retardation of change. 

It matters not how far the state may have advanced in 
its industrial and political organization, problems con- 
tinue to press for solution. Thus the steam-engine drives 
out the hand-loom and the stage-coach, the electric motor 
supersedes the foot-power of earlier days, the typewriter 
modifies the character of business, the elevator system of 
grain storage breaks up the older methods of handling 
wheat, the telephone and telegraph revolutionize communi- 
cation, the trust reorganizes production and the trade- 
union affects the character of labor. Incoming hordes of 
people from foreign shores change the national and racial 
ideals in the process of amalgamation. New notions of 
class relations and governmental functions are introduced. 
The native population undergoes a gradual alteration in 
character and habits, and the centers of population are 
shifted in their relation to industry. Government is al- 

197 



198 MODERN INDUSTRIALISM 

tered in form and efficiency by changing conditions. The 
whole is a seething mass of striving individuals and 
groups whose struggles obey economic and political laws 
that slowly form and direct the evolution going on in the 
industrial state. 

In this strife individuals and even groups are at times 
seriously affected in their wealth, organization, and social 
relations. Railroad managers make or destroy the indus- 
try of a town by a change of rates ; a trust shuts up a plant 
and throws men out of employment ; strings of banks con- 
trol the credit of a district ; agreements, combinations and 
pools all in their very nature tend to injure some one 
through manipulations of price, control of raw materials 
and limitation of product. 

It is a great problem that confronts the state. How, 
with all of the elements involved in its organization, can 
the state unify these industrial forces, subordinate some, 
elevate others, and at the same time render justice and 
continue its industrial progress without serious interrup- 
tion ? It involves the mixture of classes, institutions and 
forms of organization. The problem touches class dis- 
tinctions founded on the possession of capital and the ex- 
istence of a free body of life-long wage-earners. Property 
and contract further complicate the matter ; the organiza- 
tion of capital in corporation, trust and combination, and 
of labor in the trade-union, make it a question of the rela- 
tion of groups and masses. The individual plays but an 
unimportant part except as a member of a group. The 
tendency toward this form of organization increases the 
difficulties confronting the state. The change from in- 
dividual to group requires a strongly organized power to 
make the adjustments satisfactory to the state and the 
individual. In the absence of any organization of public 
opinion outside the state the individual is forced to look 
to it (the state) for the regulation of industry. 

The completeness of the national organization in which 



FUNDAMENTAL QUESTIONS 199 

the revolution takes place rests upon the cooperation of the 
industrial forces within its confines. To a foreigner the 
greatness of a people is measured by armies, navies, foreign 
trade, miles of railroads, industrial capital and annual 
product, but its weakness is indicated by class strife, in- 
dustrial war, disorder and the absence of state authority. 
Some conflict must take place in every advancing state, 
but if it is of such a nature as to strain the structure, the 
state is weak, even though for the time being great when 
measured by the figures of standing armies, many vessels 
and large population. 

The very organization of a people industrially and 
politically must result in some disturbances in the balance 
of industrial forces within the state and outside in the 
international relations with other states. The increasing 
activities of nations in every direction, the purchase of 
armaments, the widening of foreign commerce, the en- 
largement of the territorial basis no longer sufficient for an 
expanding population, are certain to bring nations into 
competition and sometimes into war to secure what is re- 
garded as necessary to national existence. This develop- 
ment follows in the main the line of growing population, 
expansion of territory, nationalism, militarism and im- 
perialism. When dominated by such a spirit the nation 
becomes aggressive and warlike, seeking an extension of 
markets through colonization, establishment of protecto- 
rates and the making of treaties. 

These activities confuse rather than clarify the actual 
problem. It is the domestic not the foreign difficulties 
that are of the greatest importance in the welfare of the 
state. The matter of a foreign trade policy, though im- 
portant, is by no means so necessary a question for solution 
as the relations of employers and laborers, of large and 
small producers, of manufacturers and consumers, of cor- 
porations and the state, of citizens and a citizenship influ- 
enced by commercialism ; for these vitally touch the actual 



200 MODERN INDUSTRIALISM 

foundation of the state. The problem is, then, a domestic 
one, and the most difficult in those states where democracy 
exists as a political agency. 

The foundation stones of the modern industrial society 
are private property in land, private property in the results 
of labor, private ownership of capital, and the right of 
contract. These are the growth of many years. Private 
property in land comes from the right to use the earth, 
whether it rests on a royal patent, deed from the state or 
mere occupation; The application of labor to land is the 
origin of wealth, which, saved and used, becomes capital. 
The freedom of the worker to exercise his skill as he sees 
fit gives him a property interest in its results. To these 
rights another has been added, the freedom of contract, 
which permits the owner of capital or labor to refuse or 
accept the conditions of employment of labor or capital. 
In both cases there is freedom of movement from place to 
place and from industry to industry. The latter, however, 
has little or no value to the owner of labor alone, for the 
requirements of modern production are so great in capital 
and organization that he is not able to meet them. Capital 
and labor, under freedom of contract, possess a right to 
combination, which is always limited by the rights of 
others ; but which, nevertheless, with the failure of com- 
petition and the necessity of organization, becomes an im- 
portant heritage, particularly for the worker. 

With these privileges in their possession men find 
themselves in an industrial organization which has been 
built up through the workings of many forces. Only per- 
haps within a century have industrial affairs been directed 
on the basis of the four great institutions referred to in 
the paragraph above. Private property in land is a time- 
honored institution ; the same is much less true of capital 
and still more true of labor, while freedom of contract in 
its full meaning has been granted only within a century. 
Under the last a member of society has the privilege to 



FUNDAMENTAL QUESTIONS 201 

undertake any industrial enterprise. If he is successful 
society pays him a reward, if he fails the loss falls upon 
him alone. By the test of the survival-of-the-fittest prin- 
ciple the organization receives the services of the strongest. 
The struggle within the group continues with unabated 
vigor, but through the medium of the conflict leaders are 
constantly developed who tend to establish a higher stand- 
ard of work and life. In the course of time the evils that 
arise in such a society are eliminated by the force of 
economic law. 

An ardent advocate of individualism* says : " The 
modern industrial system is a great social cooperation. It 
is automatic and instinctive in its operation. The adjust- 
ments of the organs take place naturally. The parties are 
held together by impersonal force — supply and demand. 
They may never see each other ; they may be separated by 
half the circumference of the globe. Their cooperation 
in the social effort is combined and distributed again by 
financial machinery, and the rights and the interests are 
measured and satisfied without any special treaty or con- 
vention at all. All this goes on so smoothly and naturally 
that we forget to notice it. We think that it costs nothing 
— does it as it were. The truth is, that this great coopera- 
tive effort is one of the greatest products of civilization — 
one of its costliest products and highest refinements, be- 
cause here, more than anywhere else, intelligence comes 
in, but intelligence so clear and correct that it does not 
need expression. 

" Now by the great social organization the whole civ- 
ilized body (and soon we shall say the whole human race) 
keeps up a combined assault upon nature for the means of 
subsistence. Civilized society may be said to be main- 
tained in an unnatural position, at an elevation above the 
earth, or above the natural state of society. It can be 
maintained there only by an efficient organization of the 
* W. G-. Sumner, What Social Classes Owe to Each Other, pp. 66-68. 



202 MODERN INDUSTRIALISM 

social effort and by capital. At its elevation it supports 
far greater numbers than it could support at any lower 
stage. Members of the society who come into it as it is 
to-day can live only by entering into the organization. If 
numbers increase the organization must be perfected, and 
capital must increase — i. e., power over nature. If the 
society does not keep up its power, if it lowers its or- 
ganization or wastes its capital, it falls back toward the 
natural stage of barbarism from which it arose, and in so 
doing it must sacrifice thousands of its weakest members. 
Hence human society lives at a constant strain forward 
and upward, and those who are most interested that this 
strain be successfully kept up, that the social organization 
be perfected, and that capital be increased, are those at 
the bottom." 

In no sense is society a man-made organization; it is 
evolved and automatic. Sometimes the great forces which 
have formed it act detrimentally to the immediate welfare 
of society and great inequalities come out of its workings. 
This is instanced in the wrongful production of landless 
men and an increasing proletariat. All of these become 
in the passage of time more and more important factors 
in the problem. The present form of industrial organ- 
ization, for example, makes for greater inequalities of in- 
come, social position and industrial power. Thus it be- 
comes seemingly impossible to rely upon individual action 
for all social benefits. 

It is likewise increasingly clear, then, that there are 
two fields of activity, one the field of " some of us," the 
other the field of " all of us." The first is the field of 
voluntary activity in which individuals pursue their own 
interests, competing with each other for supremacy in 
rank, honor, and wealth. The second is the field in which 
the compulsory activity of government works. The in- 
creasing enlargement of the function of the state is directly 
due to the recognition of the important fact that the inter- 



FUNDAMENTAL QUESTIONS 203 

ests of the individual when fighting under a competitive 
regime are not synonymous with those of the community. 
It was but natural that in the early days our institutions 
should contemplate the harmonious action of competitive 
interests. As the industrial life has grown in complexity 
the corporation has been exalted as an economic expedient. 
This powerful economic person was not contemplated by 
our earlier institutions. These new economic institutions 
refuse to obey the general will ; government in consequence 
is strengthened until able to enforce obedience. In fact, 
the growth of this organization belonging to some of us 
threatens to dominate the organized body of " all of us." 
This is one example of the difficulty. 

It was thought and long taught that the one great field 
in governmental and industrial activities was to be found 
in the voluntary activity of individuals. What was most 
for the interests of the individual is for the interests of 
other people, and what is further of importance, it is pos- 
sible for the individual to know his interests by the coinci- 
dence of his interests with those of other people. This is 
the germ of the competitive system. Under it men come 
to identify interest with class possessions, and class feel- 
ings test the use of their property. In a democracy men 
climb above the level and in a monarchy push up even into 
the titled society by the force of wealth. The instinct of 
accumulation bids them multiply their means of produc- 
tion without consideration of the human elements involved. 
Thus high and quick profits stimulate the employment of 
cheap labor at high pressure during the boom period, while 
the depression forms a reserve army of the unemployed. 
The advancement of personal interests goes hand in hand 
with the flooding of markets with goods, excessive numbers 
of establishments, reserve armies of laborers, wide diver- 
sion of capital, strikes and lockouts and immoderate com- 
petition, leading in the end, as a natural result, to the 
trust and trade-union. 



204 MODERN INDUSTRIALISM 

In a competitive society the margin of profits is forced 
lower and lower as the conflict of contending interests 
goes on. It becomes a game of industrial war in its unmodi- 
fied form in which the best fitted to survive reaches the top. 
Best fitted to survive does not mean the best manufacturer, 
the kindest employer, but the man who will take every ad- 
vantage of the game. It is in fact the survival of the least 
moral man, who, setting the pace, establishes the business 
ethics of an entire industry. His competitors in order to 
keep their profits are compelled to adopt his methods, al- 
though in time dishonest practices bring their results ; nev- 
ertheless this is but scant satisfaction to the man crowded 
to the wall while adhering to honest methods. The results 
of the system have been disastrous, as the wreckage along 
the line of the industrial march so eloquently testifies. 
They have in fact affected the minds of competitors to 
such an extent that some of the more barbarous methods 
have been abandoned. Moral opinions have served as a 
check, but the state has been forced to modify the inequal- 
ities by factory acts, shorter hours of labor, the prohibition 
of adulteration and the insistence upon sanitary condi- 
tions. The situation raises the question as to whether we 
can carry on production and distribution by the unfet- 
tered freedom of individuals. 

The present excessive conditions in our own land and 
in less degree in England were the results of early condi- 
tions which tended to produce competition. The princi- 
ples of legislation then prevailing encouraged the organiza- 
tion of associations which were to compete with each other 
in the industrial field. Checks to monopoly were meager 
and inadequate and when broken down, as soon they were, 
left the state unprepared to deal with the problems. The 
corporations when confronted by legislation fell back on 
their chartered rights and were strongly intrenched in the 
law before the attack upon them began. This unprepared- 
ness on the part of the state was more noticeable in Amer- 



FUNDAMENTAL QUESTIONS 205 

• 
ica than anywhere else. In England the Government was 
strong and took the problem in hand at a comparatively 
early date. In Germany industry and government action 
have been so closely linked that little movement away 
from general interests and national policy can be made 
without attracting the attention of the state. The suffo- 
cation of the small industries by the larger ones in all 
these states has concentrated, with the aid of inventions, 
the power over nature in the hands of a small group of 
proprietors. 

The outcome of competition was inevitable. Self-in- 
terest brought in its train that immoderate organization 
of industry which is so markedly manifest at the present 
time and which has so intensified the struggle. There has 
also appeared an overproduction of commodities, partly 
due to methods of production and partly to the system 
of exchange, a wastefulness of competition and a depres- 
sion due to overproduction. The opposing force of self- 
interest manifested itself in the trust organization, which 
was expected to eliminate competition and secure the econo- 
mies of production to the group of industrial directors. 
Among the workers much the same difficulties appeared. 
Men were without employment, low wages and irregular 
work at times intensified the situation. Would it be pos- 
sible to organize a group that could limit the number of 
workers, a group capable of excluding the weakest and 
most unskilled from the machine industries, that should 
in fact not only restrict the competition in the labor groups, 
but also determine in some measure at least the conditions 
of employment and the use of machinery ? Such organiza- 
tions have made their appearance in the form of the trade- 
union. Their importance and power have grown with the 
increasing complication of industry. Like the trust they 
are formed to stay the ravages of competition. 

The basis of all social movement is the desire for equal- 
ity ; not equality of social position or material possessions, 



206 MODERN INDUSTRIALISM 

but rather equality of opportunity. The whole system of 
modern industry in seeking the cheapest forms of produc- 
tion breaks down any equality of opportunity that may 
now exist and hampers the people in the lower stages of in- 
dustry. The advantage of the present is largely to those 
who possess capital. The requirements of production in 
machinery, buildings and equipment are so great that the 
owners of small sums of capital find it difficult to do more 
than loan their savings to a rich man already engaged in 
the field of industry. The inequality of opportunity is 
again emphasized in the power of monopolistic concerns, 
through overcapitalization, special privileges, rebates, con- 
cessions and political intrigue, to draw away from the peo- 
ple larger returns than are their due. In so far as wealth 
makes for wealth, and machinery for increasing profits, 
inequalities are intensified in a modern society. Results 
due to the proper use of wealth and the ownership of ma- 
chinery do not interfere with opportunity except where 
fortified by special privilege or concession. Meantime the 
unearned increment, not of land only, but of profits and 
interest, brings returns to the holder under the system of 
private property. So long as these owners carry out the 
function ascribed to them and accept in its full their 
burden society has no real grievance. The complaint, how- 
ever, is of shifting responsibility of personal wealth with- 
out responsibility, of property acquired without adequate 
return, which causes President Hadley to cry out: "If 
business men are not controlled by commercial ethics — 
ethics fitting the conditions of to-day, rather than those of 
five centuries ago — they must expect to be controlled by 
something else. If they will not accept the full measure 
of responsibility which goes with their industrial power, 
they must expect to be deprived of responsibility and power 
together, by a popular movement in the direction of social- 
ism. Such a movement is being aided and countenanced 
by every financier whose interests in the stock market leads 



FUNDAMENTAL QUESTIONS 207 

him to forget the interests of his properties, by every law- 
yer who teaches his clients to evade the responsibilities 
attaching to wealth, by every man who in the excitement 
of speculation loses sight of those responsibilities — by 
every one, in short, who forgets that under the existing 
system the possession of money involves a public trust, 
with whose fulfilment or non-fulfilment that system must 
stand or fall." * 

To the worst tendencies of the competitive system are 
opposed the influences of family, religion, patriotism and 
class spirit. The very existence of the family means love 
and sacrifice, yet the demands of families for social recog- 
nition may be the stimulant which drives men to the evil 
practices of the competitive system. Religion touches but 
few to the point of restricting methods of wealth-getting 
and patriotism has not yet taken the form of producing 
wealth under the best conditions. Class spirit means 
emulation of the leading characters in the group, and as 
already shown men are not always free agents in the choice 
of means. Each of these influences may bring forth ideals, 
but they seldom take a form positive enough to actually 
direct the action of large groups. The power of discipline 
through these ideals is not yet great enough to hold ex- 
cesses in check. Other counteracting forces, strong, but 
not all sufficient, are universal suffrage, organization of 
labor force and the use of it in strikes. The first of these 
presupposes a state which by government action can 
through the rule of the majority exert a restraining influ- 
ence upon industry, the other two are still in the realm of 
the competitive field and depend for their action upon the 
union of individuals against other industrial groups with 
whom they are not in agreement. In any event the forces 
and influences here enumerated do not meet the difficulties 
of the problem. Men still seek equality. 

They propose to level the chances of getting ahead by 

* Hadley, Economics, p. 120. 



208 MODERN INDUSTRIALISM 

the means of the trade-union, by a system of cooperation 
or by socialism. 

Even in the field of labor equality does not exist despite 
the notion of "free economic beings." By circumstances, 
such as want of food, suffering families, and the many ills 
which flesh is heir to, some laborers are forced to under- 
bid those who perhaps are more able to do the work, but 
who are not willing to do it so cheaply. This means an- 
archy of labor. Competition does not stop here. The 
laborer must bargain with the employer. The latter stands 
as the embodiment of the purchasing side of the market. 
Every day that passes decreases the capital of the laborer 
by just that much. His capital is time. Lack of employ- 
ment means the slow dwindling of resources and savings. 
The employer can wait, if necessary, without any special 
inconvenience to himself. He has sufficient funds to tide 
him over until an increase in the business or the distress of 
the employees brings an adjustment. The laborer is not 
in such a position. The extended use of machinery has 
made his living in many ways more precarious than it was, 
and he is more dependent upon the moves of the employer. 
New inventions, revolutionizing methods of production, 
fall upon him temporarily, it is true, but nevertheless 
at times heavily. Superior forces have him at their mercy 
and with these he finds it difficult to cope. His power 
to adapt himself to these new conditions does not grow with 
their change. Machinery increases the possibilities of 
change in the displacement of cheaper men by better ones 
in one kind of industry, and the better men by cheaper 
ones in others. In the last case the high-grade men sink 
to the level of the new scale of wages and work established 
by the cheaper men. These influences create an increasing 
proletariat who, being mobilized in large centers, soon 
break their ties of village and family. 

The alternative open to the proletariat in the attempt 
to better conditions is one of the three movements : trade- 



FUNDAMENTAL QUESTIONS 209 

union organization, cooperation, or workingmen's parties. 
In the first and third there is some recognition of the neces- 
sity of political effort to secure economic legislation. The 
trade-union hopes to modify present conditions by political 
action, but at the same time to make their own wage com- 
pact without interference by state authority ; on the other 
hand the workingmen's parties aim to control, not to in- 
fluence, government action. The trade-union disciplines 
and educates, but does not include the weakest and poorest 
paid workers. The political party raises the hopes of all 
and promises benefits to all. Trade-unionism drifts toward 
a democratic program, the workingmen's party toward so- 
cialism. The prevalence of one over the other rests upon 
the making of a proletariat. If modern industrial condi- 
tions produce an increasing number of low-grade workers 
the general people's party is not likely to be democratic but 
socialistic. 

Some evidences of the future are to be seen in the ex- 
periences of modern lands. In England the trade-union 
movement is a powerful factor in the industrial and political 
world. The great trades have been organized thoroughly 
and in their organization the men are placed on an equal 
footing with their corporate employers. Among the lower 
grades of unskilled workers the union has made its appear- 
ance. In fact, the labor organizations of England hold an 
important position dictating the conditions of employment. 
So long as this is true the workingmen's party does not 
assume an independent position, but remains in alliance 
with the trade-union. In Germany a survival of the old 
guild form has been introduced by the Government, but 
the workingmen's party grows increasingly socialistic with 
the suppression of the small industries and the introduction 
of machinery. America has both a labor party and trade- 
unions ; at times allied, at others markedly hostile to each 
other. The trade-union dominates the labor movement. 
Hope exists in the minds of most workers that the present 

10 



210 MODERN INDUSTRIALISM 

system can be modified by organization with occasional aid 
from state authority. Men look askance at socialism and 
cling to individualism, somewhat modified, but retaining 
the initiative and directive power that are supposed to exist 
in the competitive system. 

The trade-union hopes to strengthen the strategic posi- 
tion of individual workers and by organization to take 
the function of bargaining out of the hands of the single 
worker. The first of these objects is to be accomplished 
by building up a vested interest in an advantageous means 
of livelihood, to limit output, regulate apprentices, deter- 
mine the conditions for the introduction of machinery and 
to enlarge the membership. " A vested interest in an ad- 
vantageous means of livelihood " brings to the discussion 
" rights of employment/' " dismissal when inefficient," 
phrases that are now new in the labor question. The short 
life of the worker as a machine-tender has forced the trade- 
union to limit output whenever the day is lengthened, 
speeding-up resorted to, pacemaking used or the number 
of machines to worker increased. The old apprentice sys- 
tem is now a thing of the past, and in this question the 
trade-union insists that apprentices shall not be introduced 
as a disguise for cheap labor, but that they shall receive 
instruction and adequate pay. Machinery affects the em- 
ployment of men by reducing numbers and lowering the 
skill required. To offset these the unions demand the right 
to consider the conditions of introduction. A propaganda 
extended and energetic increases the membership of these 
industrial organizations and makes possible the attain- 
ment of the objects named above. 

The weakness of the individual is strikingly brought 
out when forced to accept the terms of employment under 
stress of sickness at home or conditions similarly distress- 
ing. It is proposed to conceal and protect the economic 
weakness of the individual under the general average of 
the group. The trade-unions, particularly in the more 



FUNDAMENTAL QUESTIONS 211 

skilled industries, seek to determine wages and conditions 
of employment by collective bargaining. Such methods of 
wage-settlement require agreement among the members of 
the union upon the conditions. To meet this the policy 
known as the " common rule " has been adopted. As in- 
dicated in another place the " common rule " maintains 
a minimum wage, a normal day, now regarded as eight 
hours, and sanitary conditions in shop and factory. In so 
far as the minimum wage is standard the employer can not 
afford to employ any but the best workmen, so that the 
lower grade of workmen is at the mercy of the sweated 
industries, and in times of depression the number of those 
close to the edge of non-employment is greatly enlarged. 
Even the living wage and standards of employment do not 
solve the problem of the unemployed and the unemployable. 
" To improve the condition of wage-earners labor must 
own machines." This is the dictum of a group of workers, 
still sympathetic with the trade-union but far from social- 
ism, yet convinced that the trade-unionist must hold his 
place at the sufferance and sometimes by the charity of the 
employer. Under competition there is no share of the profits 
but an increasing unsteadiness of employment which 
makes the future uncertain for the man who depends upon 
manual labor for his support. The machine does in many 
instances most of the thinking, and by the very force of the 
situation the machine, the man who owns it, will take the 
profits. How, then, to get the machine and the profits for 
the man who tends it ? This is to be done by cooperation — 
a union of capital with the labor power of the worker — in 
which the employer is eliminated and the workers share 
the total product. Competition, the dreaded thing, is elim- 
inated from the group, though severe contests may take 
place with outside groups. This system, with its three 
divisions of cooperative banking, manufacturing and mer- 
chandizing, is sharply separated from most modern plans 
of social organization in that it advocates no disturb- 



212 MODERN INDUSTRIALISM 

ance of private property, insists upon self-exertion, re- 
fuses state subsidies, and shuns interference with the in- 
dividual freedom so likely to take place in a socialistic 
scheme. 

Nevertheless, the socialists declare that trade-union- 
ism, cooperation, and the other modifications of the com- 
petitive system are inadequate, limited in scope, and never 
likely to reach the real evil — the existence of a proletariat. 
In the opinion of these advocates it is impossible to secure 
equality through the voluntary organization of industry 
that by its very competition forces men into lower and 
lower stages of industrial activity. From their point of 
view there is no question that greater equality of income 
and opportunity can never be secured under the present 
system. 

In the place of the now chaotic, revolutionary and dis- 
turbed society socialism is to abolish poverty, to provide 
work for all, and require all to work, to give to each an 
adequate income; in fact, to restore society to a peaceful 
organism working for its own interests, not those of indi- 
viduals. Its fundamental problem is to secure equality. 
To accomplish this the so-called scientific socialists have 
proposed the labor theory of value, in the terms of which 
all values are measured by their labor cost. Having na- 
tionalized, or democratized, the means of production each 
member of society may lay claim to a share of the product 
measured by the values created by his labor. Socialism 
then becomes the organization of society, for and by the 
proletariat, through the convenient institution of universal 
suffrage. The capitalists as such disappear, wage-slavery 
becomes a thing of the past, and under the stimulus of a 
new society, freed from the burdens of the old organiza- 
tion, the final product is to materially increase, enlarging 
individual incomes as already suggested. Thus far social- 
ism has been a form of criticism and the caustic comments 
of its advocates upon the present individualistic society 



FUNDAMENTAL QUESTIONS 213 

have brought out clearly its faults and defects ; but social- 
ism is not constructive, the burden of proof against possible 
modification of the present system rests upon it. In fact 
the advocates of that creed must show how a collectivist 
state can be organized, and further, that it will be superior 
to the existing capitalistic regime. 

Meantime, while the advocates of various forms of 
social organization are presenting their theories with un- 
usual energy, a great change is taking place in the rela- 
tions of capital and labor. The organization of capital in 
the large corporation and combination, and of labor in the 
trade-union, furnishes the basis of an alliance which 
proves more and more possible with the movement of 
events. The power of the one to retain the market and 
the control of materials, and of the other to limit the 
supply of labor, are all that is necessary to give complete 
control of products. One result only can come from these 
alliances, a result clearly perceivable in higher prices and 
increased burden for the consumer to carry. Competitors 
will be forced to pay the higher wages secured to the labor 
group through the alliance, and the consumer can not look 
for relief from that source. Bitter warfare may occasion- 
ally break out between the members of the alliance over the 
division of the spoils, but mutual interests will soon find 
a way to avoid disagreements over wages and profits. High 
prices from such causes will be productive of a decreased 
purchasing power, a closing of employment to many by 
the restrictive action of the union, the rapid appearance 
of a proletariat and the forming of class lines more marked- 
ly than in the past. Such an outcome will lessen rather 
than strengthen the faith of the individualist in the com- 
petitive system and establish the socialist as a prophet. 

From what has been said it will be seen that industry 
in America, as well as in other lands, is involved in serious 
problems the solution of which stirs the very foundation 
of modern industrial society. The forces now at work 



214 MODERN INDUSTRIALISM 

tend to deprive men of their independence, to make them 
the subjects of machinery, of trade organizations, trusts 
and corporations. The human refuse from machine indus- 
tries is thrown upon the mercy of society, which attempts, 
through the inadequate methods of charity, poor relief and 
the almshouse, to take care of the most distressing cases. 
Accidents and deaths from the conduct of industry number 
armies in their totals, inequalities of wages and wealth- 
distribution are apparent everywhere. Monopolies strongly 
organized under the privileges of the law levy taxes upon 
consumers, trade-unions and corporations combine for 
mutual advantage and against the welfare of the people 
as a whole. It is indeed a sea of difficulties. The state 
is confronted by problems, some definite, some intangible, 
all serious. How is the state to promote the equality of 
citizenship and opportunity, to keep open for every wage- 
earner the possibility of a future that is something more 
than a meager support and a hard living; how, indeed, is 
this body to conserve the forces of initiative against the 
hardening of class lines and the extension of state func- 
tions, break up monopoly privilege of every kind and re- 
duce corporations to their proper place in the law ? 

Is it necessary in order to meet these difficulties to 
reform society, or are the foundations so securely laid on 
private property, individual initiative and competition, 
that these may be retained through some modification of 
the wages and capital system now seen only in dimmest out- 
line ? The individualist having parted company with the 
old laissez faire doctrine is ready to modify the competi- 
tive system to avoid its evils. But the socialist refuses 
to consider modification, looking for the final solution in 
a society based upon equality, public ownership of the 
means of production, and distribution of product upon 
the basis of labor done or the needs of the members of so- 
ciety. The first means the natural evolution of the exist- 
ent, the second a complete revolution of the competitive 



FUNDAMENTAL QUESTIONS 215 

system. If we refuse to accept the last as a solution we are 
forced to turn to the existing state as the institution that 
shall in the end control modern industry. If this view is 
accepted the interest centers in the possible attitude the 
state might take in reference to its development and the 
final solution of these problems. ~No complete solution 
can ever be attained by the state, but it is forced neverthe- 
less to take a position. Three ways only are open to it 
under the present conditions. These are found in occa- 
sional interference, systematic regulation, and government 
ownership of public utilities. 



CHAPTER II 



INTERFERENCE 



As the reader approaches the question of state functions 
he is confronted by a number of views relating to the con- 
trol and regulation of industry. At one extreme is the 
panpolity of the scientific socialist school and at the other 
the anarchistic individualists ; between the two extremes 
is a variety of opinion shading from one to the other. So- 
cialism proposes, in so far as it may be distinguished from 
state socialism, a revolution of society, the elimination of 
competition, the suppression of private property and the 
control of industry by the people. It is based upon the 
widest notions of democracy. German in origin, it refuses 
to accept the modern state, forgetting that in England 
and America a democracy already exists upon which 
might be builded a socialist state. It seeks a new organ- 
ization dominated by notions of equality resting upon 
labor theories of value. 

Nevertheless it may be taken for granted that the 
corner stones of the modern state, so long in the making, 
will not be cast aside in the organization of the future 
state. In so far as scientific socialism proposes to do this 
just so far may it be counted out in the reconstruction of 
modern industry. The right to property, individual initia- 
tive, competition, freedom of contract, are necessary to 
growth and progress. From time to time these may be 
modified, may be limited and restricted, but the present 

216 



INTERFERENCE 217 

and future generations will not cast them aside for the 
uncertainties of an unknown and unconstructed organiza- 
tion. The statesman and the citizen are not confronted 
by a question of the establishment of a revolutionized so- 
ciety under the direction of a panpolity, but are brought 
face to face with problems dealing with the modification 
of the present state in which are retained the great devel- 
oping forces of the past century : individual initiative and 
industrial liberty. 

Consequently, the paramount issue is the continuance 
of a state in which the present institutions may remain in 
their essentials. What theory of the state permits this and 
permitting it meets the difficulties now found in an indus- 
trial society ? To this query a number of answers may be 
given. For one, individualism of the Herbert Spencer type 
is all-sufficient, to another reasonable regulation of indus- 
try is necessary, while to a third state socialism furnishes 
a solution of these problems. As a result of such positions 
we have the advocates of occasional interference, of sys- 
tematic regulation and of government ownership of public 
utilities. 

A distinction must be made between the terms used in 
the paragraph above in order to indicate the steps leading 
from one to the other. Interference in industrial matters 
is confined to intervention in acts that are detrimental to 
the state and public welfare. Regulation presupposes a 
rule or order prescribed by a superior or competent 
authority which determines the actions of those under its 
control. Ownership is the property right over wealth and 
implies its use and direction. Carrying the analysis 
farther it is found that in a state, interference takes place 
at irregular intervals under the direction of the judicial 
and at times the executive powers of the government with- 
out the necessity of an organized code of laws. Such 
government action as aims to secure the fullest freedom 
of competition and the enforcement of contracts may be 



218 MODERN INDUSTRIALISM 

classed under this head. Regulation, as contrasted with 
interference, is continuous in that definite rules are laid 
down to control the actions of individuals in industrial 
matters while in a state where there is occasional inter- 
ference the legislation is usually of a prohibitive nature. 
In the interference state the government machinery is 
simple, in the regulative more complex. The latter form 
includes inspectors, boards and commissions in its organ- 
ization; the state ownership system is a still more com- 
plicated type because of the presence of vast bureaus and 
departments necessary to the conduct of the state indus- 
tries. 

Much as we have been led to believe that the doctrine 
of laissez f aire has meant the simplest form of government 
content to permit economic laws to work out the problem, 
nevertheless it has always presupposed the existence of a 
more than average intelligence and the presence of adults 
fully able to know and to carry out their own wishes. The 
very presence of the state is evidence of at least a limited 
interference, as is seen in the collection of taxes, the en- 
forcement of law and the maintenance of armies and 
navies. On the ground that men may be expected to dis- 
cover and aim at their own interests better than a govern- 
ment can do it for them, the individualist stands opposed 
to any extension of state activities beyond the necessary 
protection against imposture, ignorance and violation of 
rights. Under a rule of this kind self-reliance, activity 
and enterprise are wonderfully stimulated. It may be 
said that such a plan of government works more than 
fairly well, but requires some interference. 

Freedom of contract is a necessary requisite of an in- 
dividualist society; it requires as an essential element of 
its working the presence of a power able and willing to 
enforce agreements when made by individuals. Besides 
this duty the government, even the individualistic society, 
is called upon to remedy wrongs by enforcing reparation 



INTERFERENCE 219 

or inflicting punishment upon evil-doers. In the same 
sense violation of property rights by mobs or bandits must 
be prevented by force if necessary. The government, too, 
may within limits prohibit acts involving mischief to others 
and in an industrial state protect children not only against 
the tyranny of parents who seek increased earnings by the 
exploitation of their children, but also from the excessive 
hours of labor exacted by overgreedy employers. Even 
the compulsory insurance in the German Empire may be 
justified on the ground that it stimulates self-help and 
maintains self-respect by keeping individuals out of alms- 
houses during times of temporary illness. In this instance 
the individual is protected against the too heavy punish- 
ment of competition by the distribution of the cost over 
the three agents of production; fundamentally, however, 
individualism insists upon each person bearing the cost 
which falls on him as the result of the freedom of contract 
and industrial liberty. 

Individualism and interference are not antagonistic to 
the degree usually declared; in fact, some interference is 
necessary to secure the action of economic law. To what 
degree, then, have states interfered in industry without 
entering the field of regulation or government ownership ? 
It is not beyond the scope of an individualist state to en- 
force contracts, maintain competition, protect property, 
prevent mischief and guard the lives and health of those 
not able to sustain their own interests. The individualist 
feels that there is an opposition arising between the state 
and the person when the former enters the field of industry. 
It is his desire that the state should give sufficient scope 
for private enterprise and at the same time exercise that 
supervision which may be necessary to give freedom of 
competition in its best sense, prevent coercion either by 
employer or organized employee, and on the whole let 
economic forces rather than legislation determine the re- 
lations between individuals in the field of industry. 



220 MODERN INDUSTRIALISM 

Still, even the individualist knows that there must be 
some correction of the self-seeking in an unlimited state of 
laissez faire, otherwise the very basis of individualism, 
freedom of contract and industrial liberty might be per- 
verted into industrial absolutism. 

The common law has long held two classes of agree- 
ments to be void. Under the first of these there is re- 
quired a full and free consent to the conditions before the 
law will recognize them as acceptable ; in the second class 
contracts or agreements opposed to public policy are when 
so found non-enforceable and void. Starting with these 
great legal principles as the basis of interference and of 
legislation the courts of all lands have steadily refused to 
sanction contracts or agreements when they were not in 
accord with them. When expanded to the fullest extent 
these principles justify state socialism. Between inter- 
ference and socialism no great barrier exists so far as the 
grounds of interference are concerned. The difference is 
found in the advocate's attitude of mind toward the great 
question of state aid and state help. 

Competition has long been defined as the free play of 
individual self-interest, which when active is supposed to 
result in a fairly equitable, certainly automatic distribu- 
tion of wealth. In the actual field there are forces that 
counteract its workings; these are custom, combination, 
legislation and the presence of large numbers of non- 
competing groups. Despite this formidable array of op- 
posing forces the individualist holds that the only prin- 
ciple maintainable in the long run is that of competi- 
tion. The common law recognizes the possibility of evil 
conditions under a contract, and in view of this main- 
tains the right of the individual to compete and to be free 
from restraint in the conduct of his business. To buy or 
sell, to promise or not to promise, are open to every man, 
but once having made a contract the whole weight of the 
social organization bears on him to carry out the agreement 



INTERFERENCE 221 

except in the instances of contracts not freely made and 
those against public policy or in restraint of trade. 

Any agreement involves an obligation limiting personal 
freedom. The passage of society from status to contract 
necessitated a legal relation which appears in the contract, 
still enforceable by the state just as the conditions of status 
were, but differing in the option of the individual to enter 
into a legal relation with another. In fact, " every person 
not subject to any legal incapacity may dispose freely of 
his actions and property within the limits allowable by the 
general law. Liability on a contract consists in a limita- 
tion of this disposing power by a voluntary act of the party 
which places some portion of that power at the command 
of the other party to the contract. So much of the contrac- 
tor's individual freedom is taken from him and made over 
to the other party to the contract." * " The state under- 
takes to enforce the self-imposed obligation except when it 
does not conform to general law. This power of the state is 
great and opens the way to possible abuse in the enforce- 
ment of contracts. The widest and most important func- 
tion of the state with relation to trade is then to enforce 
contracts; and it does this by means of suits for damages 
and for specific performance in courts of law. The great 
principle which governs the action of law, i. e., the action 
of the state in these cases, is that free and intelligent con- 
sent is of the essence of such a contract as the law will 
enforce." f 

In what cases will the state enforce contracts or refuse 
to sanction them in the fields of commerce and industry ? 
This query touches not only the buying and selling of 
commodities but the employment of labor. It applies to 
competition, its freedom or limitation, to restraint of trade, 
the maintenance of monopoly, to wage contracts, organiza- 
tion of unions and associations, strikes and boycotts, and 

* Pollock, Contracts, p. 187, 2 Ed. 

t Farrar, The State in Its Relation to Trade, p. 16, 



222 MODERN INDUSTRIALISM 

the employment of women and children. A complete dis- 
cussion of these points would require a volume in itself. 
For this the reader must be content to accept the remaining 
paragraphs of a chapter. 

Numerous cases have been brought in the courts of 
different countries to determine what is meant by fair com- 
petition. It has been generally decided that competition 
is fair when open without privilege or concession to the 
competitors. A man can not claim freedom from com- 
petition because of priority of entrance into a trade, nor 
does a reflection cast upon the goods of a manufacturer 
by another in the same business constitute libel or give a 
basis of legal complaint of unfairness. An agreement 
with a state, even though it be in its nature a monopoly, 
as in the instance of the sole right to build a bridge 
within a given distance from a city, is a contract -and 
enforceable against those who infringe. In the ordinary 
relations of men, when there is no state concession, un- 
fair competition exists when an act is a wrongful one 
under the law and by fraudulent misrepresentations in- 
jures the business of an individual. Morally individ- 
uals are under obligation to abstain from any interference 
with contracts between different persons, but the law does 
not undertake to enforce it unless fraud, misrepresentation, 
or malicious intent are shown. To prevent a contract by 
such means when once entered upon and on its way toward 
completion is illegal and in violation of the principle 
of competition which the state has always shown itself 
ready to maintain. Where no contract exists fraud or 
misrepresentation are the essential elements in unfairness. 
Under an individualistic regime these constitute causes for 
action in courts of law. The machinery of intervention is 
started by a request made to the judiciary of the state. 

" What, then," asks the judge in the Mogul Steamship 
case, " are the limitations which the law imposes on a trader 
in the conduct of his business as between himself and other 



INTERFERENCE 223 

traders ? There seem to be no burdens or restrictions in 
law upon a trader which arise merely from the fact that 
he is a trader, and which are not equally laid on all other 
subjects of the Crown. His right to trade freely is a 
right which the law recognizes and encourages, but it is 
one which places him at no special disadvantage as com- 
pared with others. No man, whether trader or not, can, 
however, justify damaging another in his commercial busi- 
ness by fraud or misrepresentation. Intimidation, ob- 
struction, and molestation are forbidden; so is the inten- 
tional procurement of a violation of individual rights, con- 
tractual or other, assuming always that there is no just 
cause for it. The intentional driving away of customers 
by show of violence ; the obstruction of actors on the stage 
by preconcerted hissing; the disturbance of wild fowl in 
decoys by firing guns ; the impeding or threatening servants 
or workmen ; the inducing persons under contract ; all are 
instances of such forbidden acts. The substance of my 
view is this, that competition, however severe and egotis- 
tical, if unattended by circumstances of dishonesty, in- 
timidation, molestation, or such inequalities as I have 
above referred to, gives rise to no cause of action at com- 
mon law. I myself would deem it to be a misfortune if 
we were to attempt to prescribe to the business world how 
honest and peaceable trade was to be carried on in a case 
where no such illegal elements as I have mentioned exist, 
or were to adopt some standard of judicial ' reasonableness ' 
or of 6 normal ' prices or i fair freights/ to which com- 
mercial adventurers were bound to conform." * Here 
within the paragraph just cited is a concise statement of 
the essential principles upon which interference is based 
in the individualist state; reliance in the long run must 
be placed upon economic laws ; the state can not establish 
a standard of conduct or of economic advantage that will 
result in ultimate justice. 

* Law Reports, 23 Queen's Bench Division, p. 598. 



224 MODERN INDUSTRIALISM 

There was a time in English history when the common 
law looked upon contracts made to prevent men from carry- 
ing on their callings as restraint of trade. By degrees 
this principle, so broadly stated, has been modified to meet 
the changing conditions of industry. Several centuries 
ago it was declared that a contract in general restraint of 
trade was bad, but, if in partial restraint, it might be valid. 
Within recent years the courts of equity have come to re- 
gard the common law as a mere application of a more gen- 
eral principle : that restraint of trade must be reasonable. 
The old doctrine applied to one location, but with the 
annihilation of time and space by science and invention it 
became unreasonable to make void any agreement not to 
carry on a trade anywhere. Consequently, restraint of 
trade to be unreasonable must show injury to the indi- 
vidual or be opposed to public welfare. 

The adherents of individualism believe that they have 
an all-sufficient remedy for the protection of the individual 
and the public in the principles of the common law. This 
law as such does not prohibit the making of contracts in 
restraint of trade, it refuses to recognize their validity 
after they have been made. To create restrictive law, from 
this point of view, is to hamper competition, for public 
policy favors the utmost freedom of contract except where 
the agreements are not made for the purpose of enlarging 
the capital of the individual concern, increasing the facili- 
ties to do business, or for the protection of the parties to a 
contract against active competition, but for the purpose 
of regulating, controlling and withholding the supply so as 
to enhance the price of necessities. Where agreements have 
been made to accomplish such a purpose the courts have, 
when appealed to, denied their validity and dissolved them. 

The common law may be said, at least by implication, 
to control the actions of corporations. Grants of a cor- 
porate nature are always supposedly made for the benefit 
of the public ; to use them in such a way as to destroy the 



INTERFERENCE 225 

normal functions of the corporation, to take away its free 
and independent action, to maim and cripple separate 
activity, is to nullify the purpose of its creation. And if 
such violation is followed by placing the corporate powers 
and privileges in pawn and the giving over of its inde- 
pendence and self-control to an irresponsible board, then 
indeed has it wasted and abused the privileges conferred 
upon it. The partnership of corporations with corpora- 
tions is in itself void.* " If," to use the language of the 
court in the case of the People vs. the Korth River Sugar 
Refining Company, " corporations can combine, and mass 
their forces in a solid trust or partnership, with little added 
risk to the capital already embarked without limit to the 
magnitude of the aggregation, a tempting and easy road is 
open to enormous combinations, vastly exceeding in number 
and strength and in their power over industry any possibili- 
ties of individual ownership ; and the state, by creation of 
the artificial persons constituting the elements of the com- 
bination, and failing to limit and restrain their powers, 
becomes itself the responsible creator, the voluntary cause 
of an aggregation of capital which it simply endures in the 
individual as the product of its free agency. What it may 
bear is one thing, what it should cause and create is an- 
other." 

In the case of combination the individualist is forced 
to resort to legislation to prevent the aggregation of capital 
unless he expects economic forces to slowly drive fictitious 
and unnecessary combinations to the wall. He, however, is 
not opposed to large capitalistic concerns as such, in fact 
he welcomes them if they make for economy rather than for 
monopoly. Says a recent writer, " In fact, the most deep- 
seated weakness and most formidable danger of individual- 
ism lies in the possibility — which it can not but admit — 
that the free competition on which it relies may by ' free 
combination ' be turned into its economic opposite, ' mo- 

* 121 New York Reports, p. 582. 
16 



226 MODERN INDUSTRIALISM 

nopoly.' " * Even this possibility the individualist main- 
tains is met, in so far as it is dangerous, by the two funda- 
mental principles of the common law referred to in a para- 
graph before. If there is coercion the courts grant a 
remedy in refusing to sanction contracts not freely made ; 
if there is restriction of supply, or unreasonable price, the 
courts find such action detrimental to public policy. In 
the words of the individualist, what more is wanted in 
the regulation of industry when it is highly essential that 
freedom, responsibility and initiative shall have full sway 
in forming individual and community character % 

As a rule the individualist maintains that adult per- 
sons ought to take care of themselves and observe where 
they are going ; if this is not insisted upon leaders are not 
developed; and further, the more you guide people the 
more they become heedless and the greater the accidents 
are likely to be. Some exceptions to such ruling would un- 
doubtedly be made by the most ardent followers of the 
principle, but in the main the contract between employer 
and employee may be made without unnecessary and ex- 
tensive regulation on the part of the state. If, in other 
words, an employer offers a man work in a shop known to 
be unhealthy, is it not a question that can be determined 
by the workman, and if the unsanitary shop threatens the 
health of the public is not the falling off in the employer's 
trade a power that will correct the evil? Are there' not, 
then, adequate forces at work in a free industrial society 
that will solve the difficulties without legislative interfer- 
ence, not only in reference to the competition of producers 
and consumers, but in the relations of master and servant? 

Of the first we have seen something in the preceding 
part of the chapter, of the second we are now to hear in 
the remaining paragraphs. 

Freedom of labor contract is in the main a nineteenth 
century product. During the medieval period in English 
* Sidgwick, Elements of Politics, p. 556. 






INTERFERENCE 227 

history the laborer was prevented by law, as in the instance 
of the Statute of Apprentices, from exercising freedom of 
employment. The guilds, too, held a tight rein over the 
industrial options of their members. Such legislation was 
distinctly in favor of the dominant class and added to their 
power over the working people of the kingdom. It was 
not until the nineteenth century that the old restrictions 
were removed and the principle of industrial liberty applied 
to laborers as well as entrepreneurs and capitalists. Al- 
though the common law was distinctly marked by the 
class prejudice just referred to, the judges nevertheless 
attempted to give a laborer some margin for the exercise 
of the freedom of contract. The attitude of the common 
law has been materially strengthened by the refusal of the 
courts to maintain as constitutional the statutes limiting 
the conditions of the labor-contract for adults. Among 
these statutes are found eight-hour laws; truck acts; spe- 
cific payment of employees in money; laws forbidding- 
employers to measure wages by screened coal, or to with- 
hold wages for imperfect work or damage to material; 
laws that employees must be paid at stated intervals and 
forbidding contracts for payments at longer intervals; 
laws limiting the right of a person to contract with whom 
he will, as, for instance, with non-union employees ; laws 
forbidding the citizen of a state to engage in a specific 
business.* TVe find upon the whole that the courts have 
maintained the position of the individualist that laws lim- 
iting the so-called natural rights of any specific group of 
persons are invalid except where necessary to sustain the 
police power of the state. It is upon the interpretation 
of this phrase that the individualist parts company with 
the advocates for larger state action. 

The phrase freedom of contract applies to labor as well 
as to capital. In its application to labor it has come to be 
regarded as a property right closely coupled with personal 
* F. J. Stimson, Handbook of Labor Law in the United States, p. 13. 



228 MODERN INDUSTRIALISM 

liberty. There is, however, a difference between a labor 
contract and what may be termed, for want of a better 
phrase, a capital contract. A contract between a laborer 
and an employer is enforceable by one party, the laborer. 
The courts have repeatedly held that a contract for services 
can not be enforced by a demand or compulsion of labor 
because of the indefinite meaning of services ; but the em- 
ployee can compel the employer to make payment of wages 
and fulfil the conditions of the contract. The employer 
has recourse to an action against his employee for dam- 
ages, but he can not secure the fulfilment of the contract 
or the punishment of his workman for leaving his serv- 
ice. Consequently the employee, not being subject to a 
criminal action, may leave his employment singly or in 
groups without punishment for committing a crime. If 
there is preconcerted action to leave employment for the 
purpose of injuring an employer, then the crime of con- 
spiracy has been committed ; but it is not for leaving em- 
ployment that punishment lies, but for combination to do 
an injury. 

It is in this principle of law and its application that 
the individualist finds a sufficient remedy for labor troub- 
les. Why should the state interfere by regulation when 
the law provides for ample satisfaction in case of violation 
of labor contract or of combinations to do injury ? Laborers 
may leave their employment when no definite time is 
stated, and employers may discharge their workers, when 
in the judgment of the employer it is necessary, without 
involving questions of crime or damages. In the compet- 
itive world it is a question of agreement determinable by 
the parties interested in the matter. It is not necessary, 
declares the individualist, to regulate, to hedge the condi- 
tions of employment with restrictions and limitations. 
These are matters which are settled every day without aid 
from the state. Even in the difficulties raised by a strike 
the law is sufficient without courts of arbitration and con- 



INTERFERENCE 229 

ciliation. The doctrine of the common law is that an un- 
lawful conspiracy is a combination of two or more persons 
to accomplish a criminal, unlawful, or immoral purpose 
by means which may be unlawful or lawful ; or a combina- 
tion to accomplish a lawful purpose by criminal or illegal 
means, or for a purpose which only could be brought about 
by the use of such means. The old interpretation of the 
law has been modified in some degree ; to-day it is pretty 
well agreed that an act on the part of two or more persons 
is indictable as a conspiracy when there has been a definite 
breach of contract and a preconcerted agreement to break 
the contract. It may be taken for granted that the organi- 
zation of society, from the individualist point of view at 
least, depends upon the idea that individuals will act as 
such, pursuing independent courses of action. 

To have a large body of men leave their employments, 
to prevent others by force from filling their positions, 
and demand as a condition of their return higher wages, 
is to imperil the ordinary course of a community's affairs. 
How far can these men go in restricting industry ? From 
the point of view of the common law that depends whether 
there has been coercion or restraint of trade by the or- 
ganized laborers. It is now well accepted, especially where 
the common law has been embodied in statutes, that com- 
binations of laborers or employees can when acting in 
their collective capacity fix wages and make rules binding 
among themselves without violating the law. An unlawful 
conspiracy then comes to be a combination for the purpose 
of compelling journeymen to conform to any rule or agree- 
ment, to which they are not parties, by the imposition of 
penalties, by boycotting, or by the threat of strikes. Labor- 
ers and the labor-unions have thus come to acquire an 
entire right to compel employers to deal solely with the 
union so long as they use all proper means by persuasion 
or by lawfully conducted strikes. The employer may make 
non-membership a condition of employment, thus offset- 



230 MODERN INDUSTRIALISM 

ting in a measure the advantage of the trade-union. So it 
appears that the followers of organized labor can restrict 
the ordinary course of a community's industry in so far as 
their actions conform to the legal acts of an individual. 
That is, an individual may leave employment, ask for 
higher wages, refuse to work if they are not granted, and 
persuade others not to work for an employer. Such are 
the courses open to organized labor. 

From these statements it appears that disputes between 
capital and labor may be left to those directly interested 
with some degree of certainty that a fair settlement will 
be reached. Through organization and mutual interests, 
agreement must be the ultimate end. ~No need exists for 
elaborate statutes, boards of conciliation and arbitration ; 
the state does not find it necessary in the long run to regu- 
late or attempt to do so. Men soon discover that commercial 
Avars are unprofitable and that their interests are promoted 
by agreement. If harmony can not be secured in this 
way the natural method is to fight it out. The state is 
interested only in seeing that no one's rights are violated. 
The law furnishes sufficient remedy for those who are 
damaged; if disorder is the result of a trade dispute the 
police are able to deal with it. Say Messrs. Hughes and 
Harrison in a report of 1867 : * "It seems to us that the 
policy of imposing exceptional penalties upon the labor- 
ing population en masse, and as such recognizing in that 
class exceptional offenses, is a principle vicious in itself, 
and long discredited. Nothing but some extraordinary 
danger to the public safety, or some peculiar proneness 
to crime, can justify such an anomalous system. We see 
nothing in the combinations of workmen which the ordi- 
nary police can not deal with." These are the views of the 
individualists who believe in the minimum interference 
in industrial affairs. 

There are three remedies open to the employer who is 
* Royal Labor Commission, 1867, Third Dissent, p. liii. 



INTERFERENCE 231 

injured, or who feels that he may be damaged by a labor 
contest. First, he may bring a civil suit for payment of 
loss occasioned by strike or disagreement ; second, to secure 
an indictment of the guilty parties on the ground of crim- 
inal conspiracy ; and third, to ask the courts for an injunc- 
tion to restrain individuals or groups of individuals from 
interference with business or its conduct. The first is in- 
adequate because the wrong committed from which dam- 
ages result involves a large number of persons, and also, 
as one authority suggests, because the damages are often 
irreparable. Sometimes suit may be brought against a 
trade-union for payment of losses, though final settlement 
is uncertain even when a decision has been secured against 
the organization. To resort to criminal action is to meet 
a demand by the court for evidence showing malicious or 
preconcerted action. In other words, a crime must be 
proven before a conviction can be secured, the plaintiff 
must show that the state is implicated by the threatening 
of industry through the unlawful act. In trade disputes 
the number of persons involved is so great that either an 
action for damages or an indictment for crime has proven 
inadequate to protect employers. Through the third rem- 
edy it is possible to anticipate damages or difficulties by 
the injunction issued by courts of equity. Consequently 
this process has come to be a most important one in its 
application to industrial troubles. 

Originally the injunction was granted to restrain the 
persons named in it, but to-day in English and American 
courts the injunction is made mandatory, and private in- 
dividuals involved in a contest among themselves are thus 
able to secure from a court of equity an order to the whole 
world not to interfere in any way with their property. 
The injunction applies to persons who actually do, or who 
have done, an act likely to injure property. The order of 
the court may be made permanent and a person having 
knowledge of the decree, " if he do or suffer to be done any 



232 MODERN INDUSTRIALISM 

act against the decree or the injunction only/' may be held 
for contempt of court and imprisoned. The offender is 
then at the mercy of the court, for the rules of law permit 
no jury trial in cases of contempt of court. In this the 
world has a process which makes any action liable, refuses 
a jury trial, denies the right of appeal to a higher court 
and ends in many cases in a fine or imprisonment. 

The justification of the use of the injunction is the 
protection of property against acts which may destroy its 
usefulness or prevent its enjoyment. The courts of equity 
have no criminal jurisdiction, but nevertheless they pro- 
pose through the injunction to interfere in any proceedings 
criminal or otherwise likely to affect injuriously property 
interest. It is difficult to say what attitude the individ- 
ualist would take on the question of the injunction. The 
effect of the injunction has been to throw the protection 
of property upon the state before the owners have exercised 
due care in word, deed or act. This in itself is enough to 
bring the individualist to maintain that the courts, in the 
criminal and civil procedures, furnish a sufficient means 
of settling disputes and maintaining industrial order. 

In every community there are persons unable to com- 
pete in the arena of competition without more or less disas- 
trous results to themselves. The very doctrine of individ- 
ualism presupposes more or less equality in strength and 
mental discernment, consequently the state may legislate 
for the protection of women and children without violating 
the principle. The aim of such legislation is to protect in- 
dividuals from the mischief caused by others, although in- 
directly it comes to have a much wider application than the 
guarding of women and children from excessive hours of 
labor, overtime and bad sanitary conditions. In fact it 
would include, without opposition by the individualist, 
statutes to prevent the contamination of the milk, water 
and food supply, the restriction of the manufacture and 
handling of explosives, the possible regulation of the liquor 



INTERFERENCE 233 

traffic and the protection of the public health. Such legis- 
lation presupposes the extension of the police power in the 
inspection of shops and factories and drifts easily into reg- 
ulation far more extensive and far-reaching than the indi- 
vidualist originally intended. Just how far the govern- 
ment should go in preventing acts or omissions that are 
not directly or necessarily harmful to persons, but do in- 
jure others than the agent indirectly, is a question that 
must be determined by actual results, for it is mixed with 
the problem of how far a government ought to interfere 
to prevent mischief caused to an individual by himself or 
by his own consent. The individualist becomes by the very 
force of the conditions a utilitarian who severely tests de- 
manded legislation likely to extend the police power of 
the state. 

The individualist state is one in which state action is 
limited and restricted. Such legislation as is enacted from 
time to time is for the purpose of limiting the excesses of 
the laissez f aire principle ; in the main every man is sup- 
posedly able to look after his own interests better than 
any government can do it for him. Individualism be- 
lieves in competition ; it is a system of production by pri- 
vate capital held by single persons, corporations and 
associations. In method it demands a free labor contract, 
open competition, a Avages system and private property. 
Education, not necessarily public, is a fundamental element 
of individualism, for it looks to the advancement of the 
individual mind and conscience to solve the problems of 
a society. It refuses to accept the notion that present gov- 
ernment is an efficient agent, but insists that it would on 
the contrary utterly break down if it attempted to control 
the complex interests of social life. More than that, the 
tendency toward state socialism will inevitably undermine 
the self-sacrifice, self-rule, and self-advancement so neces- 
sary to the upbuilding of individual and national character. 
There are evils, but as men advance they are removed by 



234 MODERN INDUSTRIALISM 

the automatic action of economic and ethical forces, while 
legislation which is the judgment of the mass as to future 
events proves in many ; many instances to be wrong. 

It is through the existence of a great individualistic 
movement that we have had constitutional liberty in poli-' 
tics, rational altruism in morals and modern business 
methods in production and distribution. The individualist 
has constantly insisted upon the difference between pub- 
lic morality and a state church, public security and police 
activity, public wealth and state property. He has taught 
men that their interests are identical.* He waits with 
patience and hope for the movement of educational, ethical, 
and economic forces, more powerful by far than legislation 
enacted by the state. The past has been his, the future 
is weighted with many problems failing of solution because 
of the departure from the principles of individualism. 
His is a stage in which men count as individuals not as 
a mass. 

* Hadley, Economics, p. 14. 



CHAPTEE III 



REGULATION 



In the opinion of many the laissez faire doctrine, even 
with the influence of the common law restraining it, has 
worked out in a marked tendency toward monopoly. The 
same group also believes that whatever the merits private 
monopoly may possess, when thoroughly organized as an 
agent of production, the state can not rely upon the self- 
interest of the owners to supply needs or perform the 
services demanded by the community in a way that will 
be the most advantageous for the common welfare. The 
attempts to adjust industrial difficulties by appeal to the 
courts and the common law are hampered by the very .in- 
equality of the parties to the suit. The legal talent em- 
ployed by the owners of a monopoly, for instance, is such 
as to give a marked advantage in the very opening of the 
case, while the long delays wear out the patience and the 
funds of the smaller litigant. Moreover, in those indus- 
tries into which the monopoly element has not yet entered 
and in which the producers compete with each other, free 
competition turns out to be highly wasteful and at times 
destructive of wealth, first in the unnecessary duplication 
of plants and second in the continuous elimination of the 
relatively more poorly equipped concerns from the field of 
production. The strife for business in a laissez faire so- 
ciety soon drives the contestants to fraud and chicanery. 

235 



236 MODERN INDUSTRIALISM 

It is a strife for the advantage over business opponents 
and manufacturing competitors. Men over-insure their 
vessels, bad and lazy work is done by those in receipt of 
wages, articles of food consumption are adulterated, trade- 
marks and patents infringed, short weights given, and even 
bribery resorted to for the purpose of effecting a sale in a 
society where no strong hand is put forth to stay the work- 
ings of self-interest in the industrial field. 

It is a category of industrial wrong-doing such as con- 
tained in the opening paragraph of the chapter that forces 
men to demand some restraint upon individual action. 

The individualist looked to a higher moral code to make 
his doctrine a workable one, but the very competition of 
the regime tended to reduce moral ideas to a lower rather 
than a higher standard, with a consequent demoralization 
of business ethics. Mere state interference, occasional and 
spasmodic, is not sufficient to meet the difficulties of mod- 
ern industry; the state must therefore develop its police 
power and regulate industry through rules and laws en- 
forced by inspectors and police officers if we are to have 
some equity for producing agents and some liberty for the 
consumer. This is the view of an increasing number of 
men whom for want of a better name we may designate as 
regulation individualists, since they retain the principles 
of initiative and liberty. 

The supposition was that the laissez faire attitude of 
the state touched all social matters. Natural and economic 
forces would, if left alone, determine the character of in- 
dustry and the nature of the industrial society. What 
need under such conditions for state action other than that 
found in the courts and the common law? Natural and 
economic forces did work to such purpose that the synthesis 
of society was changed and a new society created. It was 
the laissez faire system that destroyed the old, bringing 
out clearly in the process of demolition the defects of its 
own working. Rogers remarked that it results in univer- 



REGULATION 237 

sal swindling in the whole of society. It was powerless to 
check the force of self-interest or restrain the evils of over- 
coinpetition. 

This let-alone policy in the face of the growing com- 
plication of the industrial organization was unattainable 
in its purity. The state was forced to interfere and finally 
to regulate. Nevertheless, a goodly body of learned men 
argue logically and conclusively, that time shows the futil- 
ity of legislation and the value of a laissez faire policy. 
On the other hand, increasing knowledge of the past and 
a closer study of economic conditions will give the founda- 
tion for wise legislation and effective regulation. Those 
who demand increasing state action reply that liberty, in 
the sense of laissez faire, did not bring the results hoped 
for, nor did the attempts at cooperation and profit-sharing 
perceptibly modify the system. Working men want for 
old age something more than a prospect of the workhouse, 
which under the excessive competition of employers with 
employers and laborers with laborers was sure to come to 
a majority of them. The individual, where free from 
legislative restriction, seeks gain ; the best and cheapest 
producer gets the market ; the struggle for survival under 
a laissez faire regime likewise gives the mastery to the 
captain of industry who has developed the organization of 
his industrial forces to the best advantage. 

The factory system, millionaires, lowered prices, higher 
wages, are the products of an individualistic society. So 
strong is the tendency toward centralization that the small 
producer is hampered and the laborer made more depend- 
ent upon the employer. There is likewise developed a 
greater producing capacity than there is consuming power. 
The very success of the system brings forth the phenomena 
of the unemployed and the tramp. The rapid appropria- 
tion of nature's resources follows as a natural result of 
individualistic interest and freedom of enterprise. So 
great has the complication of industry become that the 



238 MODERN INDUSTRIALISM 

state, even individualistic, is forced to take up the ques- 
tion of regulation. 

Moreover, the force upon which the individualist relies 
for the working of his form of society has been, as al- 
ready suggested, strongly modified. The capitalist of his 
scheme of industrial organization is no longer an entre- 
preneur but a shareholder. He pays wages of manage- 
ment and does not receive them. The individualist in- 
sisted upon freedom for private gain, whereas the contest 
is for the control of industry and national control of world 
commerce at that. Then, too, private business has been 
organized into companies and corporations which take 
away the point of the individualist contention, because the 
problem, in one of its essentials at least, is to enforce direc- 
torial responsibility to the larger mass, the shareholders. 
The present system, with its large capital, shareholders, 
managers and directors, offers unusual opportunities for 
fraud and deceit, too well illustrated in the fictitious com- 
panies created under corporation laws. Here again is a 
situation requiring regulation. 

Nor did competition prove as beneficial as expected. 
Discriminations, combinations and pooling were resorted 
to in an endeavor to withstand its tendency. In the opera- 
tion of railroads competition often worked with a ruinous 
irregularity and inequality. Unprofitable trains, special 
rates to favored and heavy shippers, very materially com- 
plicated the situation. As it was, competition could not 
exist for all towns and country places. Many of them 
were dependent upon the rates and facilities offered by a 
single railway. In fact, competition touched but certain 
of the industries, the others were steeped in monopoly, 
custom, or combination. The attempts to overcome the 
difficulties of competition, the combinations and monopo- 
lies organized to control industries, were likely to prove so 
formidable as to constitute a menace to commercial free- 
dom. Individual initiative was wrapped up in the corpo- 



REGULATION 239 

ration, freedom of enterprise was hampered by the very 
conditions of industry created by the individualistic re- 
gime. As the work of large corporations became more 
public in character the public authority was bound to see 
that the service was well carried out. In other direc- 
tions the granting of franchises, eminent domain, and 
other privileges created a real basis for regulation in the 
interest of the public welfare. Having granted such im- 
portant concessions the question of regulation seems alone 
to be unimportant. It is perhaps a question of govern- 
ment control or government ownership. Either one, how- 
ever, involves a marked extension of government func- 
tions. Laissez faire was a remedy for conditions in the 
long run, but men want prevention rather than cure, the 
wrong stopped before it is done. Even though initiative 
and freedom of enterprise must be retained, it is better 
that they should be retained under fair conditions, which 
in the opinion of many can only be secured by the aid of 
government. 

With such foregone conclusions in regard to the func- 
tions of the state the query may well arise as to the rea- 
sons for interference and regulation. Certainly it has 
been sufficiently shown that individualism expects and de- 
mands competition, but the very tendency of the forces at 
work under such a creed of state attitude is in the direc- 
tion of stifling the life of the individualistic society. It 
must then be the first function of the state, in its relation 
to industry, " to determine the plane of competitive activ- 
ity." * To, in fact, set a limit beyond which the strife of 
competitors shall not carry the adulteration of food and on 
the other hand prevent the restriction of industry by con- 
spiracy and unfair means. These are but examples of the 
problems that confront the state in reference to the niain- 

* The three reasons given for state activity will be found in Prof. H. 
C. Adams' monograph on State Intervention, American Economic Asso- 
ciation, 1886. 



240 MODERN INDUSTRIALISM 

tenance of what underlies competition: initiative, energy, 
independence. A second reason is found in the increasing 
necessity placed upon the state to realize for society the 
benefits of monopoly. The corporation with its privileges 
is the creation of the state, the natural resources of the 
land were fundamentally the possessions of the state, but 
more than these private interest must be subordinated to 
the public welfare. Furthermore, the payment of mar- 
ket wages and market prices (and other payment would 
be impossible) on the part of the owners of the monopoly 
prevents any diffusion of benefits from a monopoly except 
as the state through its agency forces by taxation a wider 
distribution of the wealth accumulated by means of the 
monopoly. And as a third reason we find the state called 
upon to restore social harmony by the extension of state 
functions. This brings the state into a wide field of ac- 
tivity extending from the carrying of mails and the arbi- 
tration of labor difficulties to the maintenance of insur- 
ance against old age and accidents. 

Under the individualistic regime the forces of produc- 
tion are on a war footing. The two great factors of in- 
dustry are organized to meet the aggressions of each other. 
Can the state rely upon the representatives of the two 
sides to maintain order, or is the problem more deeply 
involved in the distribution of wealth and the increase of 
wants faster than the growth of income? Can, in fact, 
industrial peace be secured without the extension of state 
functions '? 

It has been pretty well demonstrated in England and 
America, and elsewhere for that matter, that the state can 
not rely upon private interests alone to promote the public 
welfare. Combination results from excessive competition, 
reorganization of industry is forced by the conflict of the 
many with each other, great organizations, strong by the 
downfall of the weak, threaten the government and con- 
tinually endeavor to control the political machinery for 



REGULATION 241 

selfish purposes. Is it possible to have some form of gov- 
ernment control that will be broad enough to include and 
reconcile the conflicting economic agents whose mutual 
struggles periodically convulse the entire social fabric, and 
at the same time strong enough to regulate the individual 
monopolies which threaten free competition and, as al- 
ready said, control the political machinery ? 

Something of the freedom of the individualistic regime 
must be retained, consequently some of the elements of 
laissez faire will appear under government regulation 
though the state may legislate, administer and intervene 
in industrial matters. Certain it is the state can not 
enter all the fields of industry but must leave some of them 
to the management of the individual under a general 
moral and ethical code. 

The division between the industries, state regulated 
and controlled, and those that are administered by private 
persons, is to-day marked by the public character of the 
employment. If it is an industry touching the welfare 
of the community the state has without hesitation under- 
taken regulation. Through legislation the state must de- 
termine the difference between private property and pri- 
vate employment and property and employment really 
public in character, as railways, public highways, and pub- 
lic utilities of various kinds. The regulation rests finally 
upon the right granted by the state, as in the case of cor- 
porations, and upon the nature of the business. A barrier 
stands in the way of wide-spread regulation beyond which 
the " regulation individualist " refuses to go without proof 
and justification. The extension of government regulation 
in the field of public employments depends upon past ex- 
perience and the results of the experiments which have 
been made in different lands. 

The great important thing in the development of state 
functions has been the increase in the number of public 
businesses, which, formerly distinctly private, have become 
17 



242 MODERN INDUSTRIALISM 

by the increasing complication of the industrial machine 
dove-tailed with community welfare. This fact in itself 
gives a basis for supervision by state authority. Early in 
the history of European states and later in America the 
fact was recognized in the effort to regulate railway con- 
struction and traffic. In any supervision of the railroad 
there were many inherent difficulties, involving the cor- 
poration, the shipper, the consumer and the state. To 
solve these by the dominance of the corporation was to 
give that organization too much power in the direction of 
industry; to regulate by competition of the shipper and 
consumer was to place the railroad at a disadvantage; the 
balancing of the factors required the presence of a neutral 
agent, found, in some degree, in the state. The state 
could regulate by virtue of its sovereignty ; first, because 
it was the creator of the corporation and the giver of the 
right of eminent domain; and second, for the reason that 
the shipper and consumer were citizens dependent upon 
it for protection against extortion, overcharge, and tyranny 
by its own creation, the railway corporation. Yet the 
problem involved the reconciliation of many conflicting 
agents, any one of which, unreconciled, meant the dis- 
turbance at any time of at least a part of the industrial 
organization. There were, to briefly enumerate, the ques- 
tion of railroad construction, the organization of the cor- 
poration, the securing of financial assistance and directors' 
responsibility, the conflict of roads at competing points 
and terminals, the making of rates, the organization of 
shippers, discriminations, the conduct of allied industries 
by the carriers and the great group of difficulties found in 
pooling and combination confronting the state in its at- 
tempts at regulation. Only in a measure can it be said 
that states have been successful in dealing with these 
manifold questions. Political considerations, national in- 
terests and sectional prejudice complicate the question of 
regulation of railroads. With the purpose of throwing 



REGULATION 243 

some light upon the methods of such regulation we may 
turn to a brief examination of the experiences of England, 
the United States, and Germany. 

Railroads in England have always been privately built 
and owned. " With the inception of the railway in Eng- 
land/' says a writer, " Parliament assumed a dictation 
over affairs pertaining to it, which in scope and influence 
has augmented until the conduct of the British system, 
as a whole, is the administration of the acts of the National 
Legislature." The conditions of building, rates and fares 
were all subjected to Parliamentary acts. The public 
authority has dominated English railroad policy, restrict- 
ing the freedom of operation since the middle of the past 
century. The result has been a steadiness of rates not al- 
ways consistent with changing conditions, payments of 
dividends highly satisfactory to the shareholder in their 
amount and regularity, and an absence of the pools, com- 
binations and rate wars so prevalent in the United States. 
Parliament began its exercise of control over the rail- 
ways by means of standing orders. This method of direct 
supervision soon proved inadequate, and in order to supple- 
ment it there was passed in 1842 an act creating a govern- 
ment department under which the Board of Trade was 
authorized to appoint inspectors of railways, to postpone 
the opening of railroads, to disallow by-laws and to insti- 
tute proceedings against companies for infringing the law. 
The same act authorized the Board of Trade to collect 
statistics of operation. In the next ten years the super- 
vising power was transferred to a body of railroad com- 
missioners and back to the Board of Trade. Enforcement 
of rates and rulings was difficult ; Parliament sought to 
utilize the judiciary in the work of securing obedience to 
parliamentary acts and empowered the court to hear com- 
plaints and execute judgments against the railways when 
it was shown by witnesses and records that the railroads 
and canals had failed to provide reasonable facilities in 



244 MODERN INDUSTRIALISM 

freights, use of cars and canal-boats and had charged un- 
reasonable and preferential rates. The form of action 
took that of complaint and the issue of an injunction re- 
straining the defendants from the violation of the law. 
The act was of small practical utility until 1873, when the 
hearing of complaints was transferred to a new tribunal 
consisting of three commissioners. The principal duty of 
the commissioners was to enforce . the observance of the 
" reasonable facilities " section of the act of 1854 and to 
decide disputes arising between the companies. Fifteen 
years later the power of the commission was still further 
increased and to the Board of Trade at the same time was 
given a number of supplementary duties. The system in 
England may be described as that of moderate supervision 
by government commissioners and boards within the re- 
strictions established by Parliament. It is a regulation 
from the view-point of the shareholder and not of the 
shipper, of the railroad and not of commerce. Successful 
it has been, because early in the development of the rail- 
roads the worst features of control, such as stock-watering, 
rate discrimination, and jobbing of corporations, were by 
adequate legislation largely eliminated. 

In the United States restrictive railroad legislation 
began in uncertainty and ended in demoralization. From 
the very first state legislatures encouraged reckless finan- 
cing and still more reckless construction by the passage 
of so-called liberal measures. The corporation acts con- 
tained little or no restrictive features, responsibilities were 
overlooked as any part of a corporation act and freedom 
of initiative existed alongside of incentives to overbuild 
and overcapitalize. Railroads multiplied, grew in power 
and threatened at times the existence of industry by a 
short-sighted policy of overcharges. It was at this- point 
that restrictive legislation began. The problem of inter- 
ference and still more that of regulation was complicated 
by the uncertainties of administration. The existence of 



REGULATION 245 

State and Federal Governments made it difficult to define 
the powers of both so that legislation of a regulative char- 
acter was handicapped in the beginning by questions of 
interpretation. 

The passage of the Interstate Commerce Act in 1887 
was a second step in legislative interference, for the states 
had prior to this date demonstrated by the conflicts and 
clashes of authority that their legislation must be supple- 
mented by a Federal act. Under this act a commission of 
five persons was created who had authority to hear com- 
plaints, make investigations of alleged personal and place 
discriminations, and gather statistics relating to the oper- 
ation of railroads. The act prohibited discriminations of 
rates, unreasonable charges, the pooling of passenger or 
freight business and authorized the Circuit Court of the 
United States to enforce the orders of the commission. 
Congress had attempted to provide in this act three rem- 
edies for the solution of the transportation difficulties. 
These may be stated as follows : first, a summary process 
by which complaints against railroads might be heard, ad- 
judicated and enforced if necessary; second, to continue 
competition ; and third, to secure publicity of the details 
of railroad finance and operation. The first of these rem- 
edies proved a failure from the passage of the act, the 
second was undoubtedly realized, but to no essential ben- 
efit of the carriers or the public, while under the third 
the commission was content to collect statistics, relying 
upon the transportation companies to furnish them with- 
out the exercise of the power of visitation by the agents 
of the commission. The act, therefore, was a disappoint- 
ment to its friends and framers, proving to them that 
mere interference of government was not sufficient, but 
that what was needed was a grant of power adequate to 
regulation by government authority. 

The indifferent success of railroad legislation in the 
United States was due to the lateness of such measures and 



246 MODERN INDUSTRIALISM 

the fact that the railroads had been in the main unre- 
stricted in their development. ~No body of law existed as a 
foundation and the laws that were enacted later had to 
pass through the interpretation, location of power and pub- 
licity stages before it was made clear that difficulties ex- 
isted in the enforcement of such acts. Moreover the law 
was in more than one instance heavily burdened by the 
character of the punishment meted out to the law-breaker. 
Rate discriminations, pooling and other violations of the 
law were regarded as crimes and punishable by fines and 
imprisonment. This was a phase of law new to American 
courts, so that there arose a conflict between the commis- 
sion and the courts not only relating to the interpretation 
of the law, but also in regard to the wisdom of such punish- 
ments. Is the raising of the price of a service either by 
individuals or by groups a crime % It had not been under 
the American law, and such interpretation is obsolete in 
England. Does the mere taking on of a public character 
in an employment so change the definition of a crime that 
what is legitimate in private business becomes criminal 
when the business is a public one \ 

The Elkins Bill answered in some measure the ques- 
tions raised by the former interpretation of the Interstate 
Commerce Act. All provisions under the old act for im- 
prisonment of offenders are repealed by the Elkins Bill 
and the responsibility shifted from individuals to the car- 
rier, which is made criminally liable just as in the case 
of individuals under the former act. While the criminal 
remedies for illegal conduct are changed, the criminal 
provisions of the law are made more definite and positive. 
The shipper may still sue for damages, but at the same 
time the carrier may be fined if found guilty of criminal 
acts. The whole constitutes a new law based on the com- 
mon law and bolstered up by fine and punishments where 
the law is violated. It is not regulation, but a wide inter- 
pretation of notions ruling under a competitive regime, 



REGULATION 247 

but which sooner or later must give over to real regulation 
by government authority. 

There grew up side by side with the rapidly expanding 
business of railways an increasing number of large manu- 
facturing and distributing concerns. Their capital mate- 
rially increased and their business multiplied many times 
in late years until the large concerns dominated the differ- 
ent lines of business. Not only by what might be termed 
a natural growth had these organizations come into ex- 
istence in different countries, but by the union of plants, 
by reorganization, by amalgamations in the form of trusts 
and huge corporations they had made their appearance. 
They were the results of excessive competition in many 
instances, in others they were the creations of promoters 
eager for fees. Changes in prices, methods of business, 
and the granting of credits followed these organizations, 
alarmed the consumer and threatened the business of 
smaller concerns. Immediately in America there arose 
a demand for restrictive and regulative legislation that 
would check the aggressions of the combinations ; in Eng- 
land the demand was less assertive, and in Germany but 
little attention was given to the industrial change. In 
each of these States a new problem of government func- 
tion arose, modified in each instance by the extent of the 
growth, the character of the people and the power of the 
government. 

Whatever the problem was in its final analysis it meant 
a change in government attitude before a solution could 
be reached. England had early in the present century 
been awakened to the possible evils of corporations. Her 
lawmakers had therefore placed restrictions about the or- 
ganization of business concerns, and by the middle of the 
nineteenth century there was created a considerable body 
of well-developed and thoroughly tested corporation law. 
In 1862 and since then the law has been amended. To-day 
England requires registration of companies, the filing of 



248 MODERN INDUSTRIALISM 

contracts made in the organizations of corporations, specific 
liability of directors and the publication of reports which 
are to make known to the public the condition of the cor- 
poration. The law in so far as it provides for actual regula- 
tion of the affairs of corporations distinguishes very sharp- 
ly between public and private employments. The course 
of the English law as to common carriers has been directly 
the reverse of its course in reference to private employ- 
ments. In the early stage of English industrial history 
many attempts were made to regulate private employments 
and trade, on the other hand common carriers were sub- 
mitted to but little supervision. Private employments 
have passed from minute restrictions to almost complete 
non-interference, public employments, particularly com- 
mon carriers, have been subjected to an almost complete 
state control. The growth in the one case has been from 
annoying restriction to complete freedom, in the other 
from freedom to full supervision and control. 

The regulation of prices of either labor or merchandise 
has been cast aside as unwise in this notable industrial 
land. There is no restriction in her laws directly or in- 
directly upon individuals or corporations to dispose of their 
labor or produce at their own free will. In fact the right 
of free use and free sale is fully established. It is the view 
of English authorities after a long and continuous experi- 
ence that combinations do not work any substantial dam- 
age to any one except the parties to the combination. The 
question of restraint of trade which may arise at times 
depends upon the reasonableness of such restraint. If it 
arises in private contract in which the public has no in- 
terest the courts must determine whether a damage has 
been done. When public interest has been affected and 
there is no statutory provision touching the matter the 
courts must say what is reasonable. The common-law rule 
which requires that a price or a charge must be reasonable 
for a public service is in itself a regulation which the Eng- 






REGULATION 249 

lish look upon as a sufficient control. When under the 
common-law rule a damage may be done some individual, 
the courts provide every facility for action against the in- 
dividual or corporation when such is the case. There is 
no limiting of prices by law, no indictment by jury or 
punishment by fine or imprisonment when a group of in- 
dividuals form a combination and in the course of business 
raise the price of their products. 

In the United States there has been a great deal of 
legislation along industrial lines. In its nature this legis- 
lation partakes of the nature of interference rather than 
of regulation ; for the acts have been sporadic attempts to 
square the principles of laissez faire to the new conditions 
and the larger and more complicated industrial organiza- 
tion. The success has been but indifferent in most cases, 
and satisfactory only when regulation has been adopted as 
the method for government action. The competition of 
the States with each other in the organization of corpora- 
tions has materially complicated the difficulties, for inter- 
state comity compels the admittance of a corporation, good 
or bad, within the boundaries of a State. This limited 
control of a State over the organization of commercial com- 
panies has brought the Federal Government into the field 
of ^legislation, just as the questions relating to common 
carriers forced the same power to deal with the problems 
of transportation. 

Rapid indeed in America has been the movement of 
private employments which involve a community welfare 
to a public importance. The legislation against combina- 
tions has invariably been passed from this point of view. 
To put it in a more direct way the statutes were enacted 
to prevent combines in trade which might become danger- 
ous to the public and destroy such as already exist. The 
supposition is that the common law and the ability of the 
judges will protect the people against monopolies that can 
be proved to be against public policy. But by defining in 



250 MODERN INDUSTRIALISM 

specific terms the objectionable acts of a combination it is 
hoped to bring out clearly the rights of the people and the 
duties of officers. 

The common law by this means has been directly ap- 
plied to modern conditions and sometimes extended beyond 
its original scope. Thus contracts under the common law, 
though in partial restraint of trade were held to be reason- 
able, were in the terms of the new statutes, though reason- 
able, declared invalid. The State and Federal power, too, 
have certainly in some instances been led by this view to 
an interference in what might be called strictly private 
business, a procedure at variance with modern English and 
American commercial law. 

The interference just referred to touches the problem 
at the point of prices. It has been declared criminal both 
by statute and judicial decree to raise the price of articles 
of prime necessity. A position of this kind when taken 
by a legislature or a court compels a distinction between 
the various kinds of merchandise and their importance to 
human welfare. Although such a position is legally im- 
possible because of the absence of any statute fixing prices 
nevertheless the courts have punished as criminal the rais- 
ing of prices by combination or agreement. Neither is it 
possible to assert where the line shall be drawn between 
the necessary and unnecessary. Further a crime involves 
the violation of a legal right of individuals or groups of 
individuals, which in the case of the raising of prices can 
scarcely be committed, since as already pointed out no 
statutes fixing prices or distinguishing between articles of 
merchandise exist on the law-books of any important state. 

Still the Sherman Act of 1890 and some of the statutes 
of the different States make criminal combinations which 
raise prices or engage in acts restraining trade. The first- 
named act made no attempt to regulate large combinations 
or their methods other than by interfering in their affairs 
under the criminal code. It provided no machinery for 






REGULATION 251 

examination, registration or directors' responsibility, but 
attempted to restate and in a measure to reform the com- 
mon law. Beyond that law the interpretation of the act 
has carried the courts so that to-day the cases which have 
arisen under it present a considerable departure from the 
principles of the common law. Interference under the 
Sherman Act has accomplished but little in the solution of 
the trust problem, leaving it in a considerable degree an 
unsatisfactory piece of legislation with little to show for 
its passage. 

^Nevertheless the reliance upon it for the solution of 
difficult problems has in no great measure ceased. Seem- 
ingly the government in legislature and executive is not 
ready for a thorough-going corporation law or far-reach- 
ing regulation. The feeling against possible repression of 
individual initiative by government machinery has re- 
sulted in a dependence upon the common law and the ex- 
tension of its principles into a series of judicial interpre- 
tations that are essentially different from the law of the 
century past. We have in the United States, as already 
pointed out, a mixture of common law and remedial regu- 
lation that nullifies the original and renders difficult the 
enforcement of a newer form. For fear the reader may 
have forgotten this essential point attention is called to the 
attempts to limit price by judicial and legislative decree 
in the recent trust cases and the punishment meted out to 
offenders when proven that prices had been raised by a 
group of producers. The American trust law possesses no 
features that are essential for a wide general welfare. As 
in the case of common carriers the States have framed no 
uniform law and in most instances have failed to enforce 
such statutes as do exist on the law-books. The conflict of 
authority so noticeable in the efforts to regulate railroads 
is absent in the attempts to enforce trust legislation, the 
commonwealths willingly turning to the Federal authori- 
ties for assistance. Such law as is found is largely negative 



252 MODERN INDUSTRIALISM 

and destructive in character, seemingly regarding the trust 
and large corporation as undesirable. 

If we turn to the German Empire a very different 
aspect is presented. In the first place the extent of indus- 
trial organization is not so great nor is the trust known in 
its American form; in the second place the Government 
has fully recognized the desirability of preventing trade 
demoralization. Contracts that aim to forestall such a 
calamity are accepted as beneficial to public welfare and 
regarded as legal by the Government. In consequence vir- 
. tually no hostile legislation exists in Germany against the 
combination as such. The courts which in the United 
States have interpreted the common law as supplemented 
-'by statutes to mean that restrictions of trade even though 
reasonable are invalid, and in England declared partial 
restraint legal under certain conditions, have in Germany 
taken the ground that the interests of combinations were 
identical with those of the people and the welfare of an 
industry depends on the maintenance of prices. When 
such is the case the courts have actually stated that there 
is but little difference between prices artificially increased 
by a tariff and the increase due to the action of entrepre- 
neurs. Accompanying such liberal interpretation of com- 
bination acts is a rigid corporation law which subjects 
every proposal in corporate form to the most rigid inspec- 
tion and prevents the evils due to excessive organization of 
combination before they take place. 

The picturesque promoter so familiar to the metropol- 
itan life of the United States and England does not ap- 
pear prominently in the organization of the German cartel. 
The presentation of a few of the principal features of the 
law clearly explains without extensive comment the 
reasons for his inactivity in that profitable field. The 
law requires a fully paid-up capital, the promoters must 
state accurately in a report to the Government the nature 
r and character of their transactions, full details of the busi- 



REGULATION 253 

ness of bought-up plants must accompany the report, di- 
rectors are held responsible for the conduct of the enter- 
prise and the Government has the right of inspection. 
The promoter gets his profits from the premiums at which 
the shares are sold to the public. Watered stock is vir- 
tually unknown and the dishonest and reckless promotion 
of corporations stopped by these rigid laws without, how- 
ever, injuring sound enterprise. 

Our brief review of government action in the field of 
industry brought out clearly the necessity of a regulative 
power and the nature of the attempts of various govern- 
ments to deal with the problems. It also uncovered the 
fact that in the exercise of regulative and restrictive 
measures governments differ greatly, the older and more 
conservative nations developing constructive and pre- 
ventive legislation, the younger and more radical evolving 
destructive and negative laws in dealing with the difficult 
economic problems. Both of these statements need some 
modification, but in the main are true to the real facts. 
England and Germany had throughout the whole of the 
past thirty years an undivided and centralized power in 
their governments. They were not hindered in their deal- 
ing with economic situations by the conflict of authority 
so frequently seen in America from 1870 to 1895; con- 
sequently their legislation was more consistent and con- 
tinuous than that of the American States. The very state- 
ment of the difference in legislation attained in the differ- 
ent lands is suggestive of the point that the character of 
the government changes the problem of regulation. Mon- 
archical Germany has no difficulty in getting results that 
are essentially impossible in America, but Englishmen 
would reject state ownership as a means of conducting 
their railroads and Americans have refused to establish the 
government interference of Great Britain. In the first- 
named land a centralized power was able to organize state 
systems of transportation at a time of great industrial 



254 MODERN INDUSTRIALISM 

chaos, the strong sense of order and subservience of indi- 
viduals and corporations to the public welfare in Great 
Britain gave her people public interference, while in 
America personal independence, weak governments and 
great necessity brought forth an extended system of indi- 
vidual liberty. 

Germany presents a picture of complete government 
domination and direction in its industrial matters; Eng- 
land in the main controls the enterprise of her citizens; 
the United States still stands forth in the minds of many 
as a land in which railroads war with the state and cor- 
porations threaten the integrity of government. Indus- 
trial liberty and the absence of restraining influences per- 
mitted the growth of gigantic organizations in the last- 
mentioned country that seized many privileges and in- 
trenched themselves in the very government itself. The 
struggle for control established drastic legislation that was 
destructive in character. The theories of the Granger 
legislation were wrong, however necessary the legislation 
may have been, and it failed to create a lasting body of 
law. It was clearly proven that successful regulation 
must be preventive and not prohibitive. Taking it for 
granted that great railroads and gigantic combinations are 
here to remain as a part of the industrial organization 
and that they do exert great influence on a government, 
two questions arise : one relative to the strength of a dem- 
ocratic state and the other in reference to the nature of 
industrial regulation. The contents of the chapter point 
to the answers which after so many pages of discussion 
are given in brief form. To the first it may be replied 
that government by the people increases in strength and 
ability to do things as the people come to identify their 
interests with those of the government, and insist upon 
better administration. Such a state may wisely and well 
postpone indefinitely questions of ownership while work- 
ing out the more important problem of control and cen- 



REGULATION 255 

tralizing power. To the second an answer implying 
the necessity of moderate, consistent, and well-organized 
laws may be given. Such legislation should include pub- 
licity of corporation accounts and relations, the responsi- 
bility of directors, limitation of promoting, and regulation 
of rates for public service. Regulation by government in 
the vastness of modern industry is a necessity, a requisite 
to order and harmony. It must begin with a well-estab- 
lished government and reasonable law. 



CHAPTEK IV 



GOVERNMENT OWNERSHIP 



Will the people of a state consent to be the serfs of a 
few shareholders or will they be willing to take over the 
management of industry? This is the query raised by 
the advocates not only of socialism, but by the expansionist 
of government function. The statement of the alterna- 
tives, ownership or feudalism, places the discussion of the 
principles on fundamental grounds. Whether a partisan 
of state socialism, or of socialism itself, the reasons urged 
for the adoption of wide social action are the same, but 
the resultant state organization, however, is a decidedly 
different one. The mere extender of government function 
hopes to retain the forces found in initiative and individual 
effort alongside of the present state activities; the state 
socialist expects the state to own and control the great indus- 
tries ; while the scientific socialist discards the present state 
and looks to a collectivist organization of industry for the 
solution of the difficulty. The first two groups of advo- 
cates touch in their contentions practical problems and 
possible solutions which are within the power of the present 
state, but the third is outside the realm of immediate 
possibilities and need not be considered as an essential 
factor in the solution of present-day problems. The re- 
maining two, however, represent two important phases of 
opinion that differ only in degree and it is to the considera- 
tion of them that this chapter is devoted. 

256 



GOVERNMENT OWNERSHIP 257 

The argument for such state action runs as follows: 
the state must extend its functions if the rights of the peo- 
ple are to be maintained, and the consumer saved from 
excessive charges. Competition in its present form must, 
if allowed to run its course, result in a grinding that leaves 
but a survival of the original number, the so-called 
" fittest." When this occurs competition no longer exists 
and a monopoly position is secured by the survivors which 
makes arbitrary conduct the rnle. In the competitive 
stage trade wars, overcapitalization, discrimination, loss 
of life from careless nse of machinery, must result from 
the freedom of all to do as they wish. Irresponsible parties 
rush in to determine what industries shall be built up. 
Their temporary interests are allowed to decide the perma- 
nent welfare of society. It is a transition time of whole- 
sale bankruptcy, losses to shareholders, rebates and uncer- 
tainty. In its own defense the state is compelled to regu- 
late. Attempts are made to build up a machinery that will 
control private interests, regulate their charges and force 
them to conform to the welfare of the state. Great diffi- 
culty is experienced in getting a meager control over non- 
essentials. As the private organizations grow larger they 
stand upon their legal powers and defy interference and 
control. Self-interest being vital, the owners of railroads 
and corporations seek to corrupt the boards and commis- 
sions established by the state to execute the laws. And 
in time politics enters business and business becomes per- 
meated with politics. 

Eon-interference results in anarchy of industry; reg- 
ulation is but an intermediate stage leading to the ultimate 
goal of government ownership, for it can not hold in check 
the great forces of industrial self-interest. Control is only 
possible with ownership, regulation is futile without con- 
trol. This is the keynote to the position of the state social- 
ists and government functionists whose objections to the 
present system have been scheduled in the paragraph 
18 



258 MODERN INDUSTRIALISM 

above. To them every effort to regulate and control must 
fail without ownership. The right to control, to fix rates 
for services, are regarded as the very essence of ownership. 
The only solution, then, of the great problems is to estab- 
lish a great industrial state, using the present political 
organization as the foundation. 

The state socialist proposes to restrict self-interest and 
to place the welfare of the community above that of the 
individual. He refuses to believe that such general wel- 
fare can be attained by the ordinary methods now in vogue 
in America and England and therefore charges the state 
with the social welfare of all of its people. Prince Bismarck 
voiced this sentiment when he said the state must give 
heed to the welfare of its weaker members. The state 
protects its subjects as a matter of course, but accepts in 
addition the responsibility of securing their rights and 
helping those who can not help themselves. Means are 
to be devised by which a greater part of the national in- 
come may be diverted to the laborer by increasing produc- 
tivity, constant employment, and the reduction of in- 
equalities. So desirable a thing is not to be secured by the 
complete overthrow of the present state, but by retaining 
the principles of the existing historic state, the institu- 
tions of private property, and the family it is hoped to 
engraft upon them wider functions and social ideals. The 
government in attaining these objects is not limited by 
principles, as in the laissez faire or even the regulative 
state, but is guided entirely by the question of expediency. 

The ultimate object of the state socialist is to do every- 
thing through the state. Though retaining the present or- 
ganization of society in so far as the family and private 
property are concerned, he expects to turn over the great 
agents of production into the hands of the state. The un- 
earned increment, now going to the landlords, will revert 
to the state; and the forests, agricultural lands, urban 
lands, mines, public utilities and means of communication 



GOVERNMENT OWNERSHIP 259 

will be public, not private property. The state in such a 
society is the greatest factor in the life of a people, it 
regulates rates, determines prices, employs labor, and pro- 
vides for the old age of its citizens. It is a paternal power. 
By means of these wholesale changes it is expected that 
there will be a marked improvement in the system of pro- 
duction. Speculation, now so rife, with its accompanying 
gambling devices for determining ownership of shares, is 
to be entirely eliminated. There will be a greater partici- 
pation of wage-earners in the distribution of national in- 
come through the medium of larger wages, shorter hours 
of labor and satisfactory sanitary conditions. Old age, 
sickness and even incapacity will be provided against by 
the foresight of the state. This will mean, it is argued, 
better men capable of producing larger amounts of wealth. 
The capitalistic system, when not so restricted, after ex- 
ploiting the wage-earner throws him, when worn out, on 
the mercy of the community. The state acknowledges the 
burden under state socialism and proposes to make better 
men, give them a longer tenure of labor and protect them 
when weak and incapable after they have done their work. 
Such a program requires an extension of state and local 
functions. But the socialist does not hesitate, he is confi- 
dent that the state will carry the burden placed upon it 
without great or serious difficulty.* It is proposed that 
the incomes from monopolies, rents and interest must, at 
least in part, be turned into the public coffers in order to 
meet the increased expenditures of the state. This is to 
be done by taxation and by the government ownership of 
utilities, and monopolies. Two objects of taxation appear 
in the program, one to regulate the distribution of income 
in such ways as to counteract the harshness, inequalities 
and difficulties of the present distribution of wealth ; the 
other to affect private consumption by making luxurious 

* See Wagner, State Socialistic Programme presented in Dawson, 
Bismarck and State Socialism, p. 156. 



260 MODERN INDUSTRIALISM 

and injurious commodities too expensive for the use of the 
common people, a method that takes the state into a na- 
tional guardianship over the liquor traffic, tobacco and 
opium trades. It is in a nutshell a system of state govern- 
ment which, holding the balance of power between classes 
and parties, uses the state for the accomplishment of great 
economic and social purposes. In effect it is a system of 
public management slowly extended over capitalistic pro- 
duction as it becomes incompetent or injurious. 

To accomplish the task of giving to its manhood a 
fairer chance of development the state finds it necessary 
early in the growth of state socialism to control the agents 
of production, especially those called natural. To secure 
the benefit of the unearned increment due to the increase 
of population and the increased value of wood products 
the state must own the forests. Large estates menace the 
welfare of the small landholder and laborer and again the 
arbitrary powers of the state are brought in play to bring 
within its control the great landed estates. Similar state- 
ments may be made in regard to urban properties whose 
values are almost entirely created by the presence of large 
populations. The ownership of these together with the 
control of mines and fisheries give to individuals an undue 
power over the materials and food products of a people that 
the socialistic state refuses to countenance. In many in- 
stances the means of communication, railroads, canals, 
roadways, telegraphs and telephones have been the means 
of exploiting unduly the people of the state, likewise their 
owners have, aside from the heavy charge, speculated upon 
their values to their own profit. In the field of monopolies, 
natural and artificial, the gain has not been for the people. 
So the state is looked upon as the power that can modify 
the evils, so apparent in the individualistic state, that have 
not departed under competitive forces nor disappeared 
with the attempts at regulation. 

It is, however, but a short distance that any state has 



GOVERNMENT OWNERSHIP 261 

gone in the direction of the extension of its powers or the 
accomplishment of this program in economic and social 
fields. Thus far two classes of states have entered the realm 
of state socialism, one monarchical in its government, the 
other democratic. The first was guided by political and 
economic considerations and the other by economic and 
ethical reasons. In one instance a strong centralized gov- 
ernment desired means of communication that were not 
provided by private capital, in the other a meager popula- 
tion, with scattered resources, hardly justified individual 
enterprise in building railroads. The state financed and 
built the means of communication. In the monarchical 
state the ownership of railroads has been followed by fair 
administration, in the colonial democracies it was succeed- 
ed by serious problems of a political nature, involving 
administration and the employment of voters. In both 
cases where the state functions were extended beyond the 
building of railways and telegraphs for economic and 
strategic reasons the initiatory force was the people. Mon- 
archical lands hoped to meet the demands of growing social 
democracy by extending the activities of the state, without 
modifying either the control or form of the political organi- 
zation. The democracies looked to government activities 
for wider employment of the population with shorter hours 
and higher wages than prevailed in private employment. As 
in every movement, political or economic, the motives have 
been a mixture of selfish interests and noble purpose. Still 
there is behind it all a strong feeling that in the state there 
will be found an agency that will solve economic problems, 
relieve distress, equalize incomes and give to men greater 
equality of opportunity. 

To know is the necessity. What have states already 
accomplished in the field of industry and how far have 
they been successful ? To answer the first part of the query 
requires an examination of the experiences of those states 
that have undertaken enterprises under state direction, 



262 MODERN INDUSTRIALISM 

and in order to meet the question in its second part a test 
must be applied to the results of government operation. 
Are the rates high or low, are the costs of administration 
excessive or low and the conduct of the industry efficient ? 
In rates and costs are two tests that will meet the needs 
of this inquiry. 

The most important industrial field which the state 
has entered is found in the ownership and operation of 
railways. Down to 1870 the motive for undertaking gov- 
ernment direction of railways was either that of assistance 
or political considerations. After that date the purpose 
changed and control as well as ownership was sought be- 
cause it was thought the railroads would, or already had, 
become too powerful. The first railroads were built in 
England during the years 1825 to 1830. The English, 
at this time, had plenty of capital and a disposition to use 
it. There was no need of aid. In the other parts of the 
empire the Government gave some financial encourage- 
ment. On the continent capital was by no means so plenty 
and such as there was was not offered freely for the estab- 
lishment of railways. The prospect for a profitable return 
was less, but the military and political necessity was great- 
er. Some of the more enlightened governments began to 
build railways. The system adopted was that of building 
roads of strategic importance and letting private enterprise 
do the rest. This plan was followed in Germany and Bel- 
gium. The French differed in that the Government gave 
support and assistance but leased the roads and rights of 
way to private companies. In Australia the Government 
owned, built, and operated the railroad. The United 
States adopted a system somewhat akin to that of the 
French. Grants of land, subsidies in cash by nation, states 
and municipalities, were given to private companies to 
build railroads. There were but few instances of state 
ownership of railroads in the United States, though States 
actively extended their credit and efforts in the assistance 



GOVERNMENT OWNERSHIP 263 

of public works and of private corporations engaged in 
making canals, roadways and railroads. 

The spirit behind government ownership, particularly 
in connection with railroad development, has materially 
changed at times not only as compared with different lands 
but in the same country. Just a little after the middle of 
the nineteenth century there was a series of national wars 
resulting in unity and government centralization; this 
statement is borne out in the unity of Italy in 1861, the 
unity of the United States in 1866, German centralization 
and Austrian unity in 1870. With this growth of national 
consciousness came an increased patriotic feeling and na- 
tional centralization. Accompanying it was a transition 
from free trade to protection and an increased desire on 
the part of government and people to control the railroads. 
It had been discovered that these steel highways exerted 
an enormous influence on trading. It was thought that 
if the government owned the railroads these difficulties 
would disappear. A very natural desire was re-enforced 
by a proposal to strengthen governments and to weaken 
private companies. Under this movement Prussia and 
Belgium in particular began to take over private roads and 
out of them to develop a state system. 

" In Prussia," Charles Francis Adams said a quarter 
of a century ago, " the experiment of exclusive state owner- 
ship and management on a large scale is destined to have 
a full and fair trial under the conditions most favorable 
to its success. Should it succeed, one solution of the rail- 
road problem will have been reached. Practically it will 
be a cooperative system, the Government, under imperial 
forms, being nothing more or less than a trustee managing 
a vast industrial organization for the general public bene- 
fit. The simple question will be, what advantages and 
abuses of its own will such a system, under all of the cir- 
cumstances, generate to offset the advantages and abuses 
of private ownership ? Such would seem to be the coming 



264 MODERN INDUSTRIALISM 

form of the problem for Germany to solve." Prussia be- 
gan her system of railroads as early as 1838. The charters 
then granted gave the Government the right to take over 
the roads at the end of thirty years by assuming the debt 
and paying the holders of shares twenty-five times the 
average dividend prevailing during the five years prior to 
purchase. By 1874 the State had paid a million and 
three-quarters of dollars in subventions and was by no 
means in control of her railways. 

The situation in the Empire a year later was that of a 
mixed system, including imperial railways, state rail- 
ways, private lines, private lines managed by the State, 
State lines managed by private corporations and lines 
leased by the Empire. There were ninety imperial man- 
agements and 1,357 different tariffs. Everywhere there 
was evident a woeful lack of plan and system. The at- 
tempt on the part of Prussia to turn over her railroads 
to the Empire was unsuccessful and immediately after 
this failure of the imperial scheme she began to take up 
the task of thoroughly establishing a system of state rail- 
ways. Of the 32,000 miles of railroad in Germany over 
30,000 miles are owned or managed by the State. In 
Prussia there are 18,642 miles under the direction of the 
Government, which have, from the point of view of in- 
come at least, been successfully operated. The German 
economist, Gustav Cohn, says in an extended article that : 
" Each year the railways not only paid in full the inter- 
est on the railroad debt and on the entire state debt, but 
in addition they yielded a very substantial surplus, which 
in the fiscal year from April 1-March 31, 1890, reached 
the maximum amount of 145,000,000 marks. Since then 
this surplus has, it is true, diminished, but it still amount- 
ed for the last year (1891-92) to about 90,000,000 marks. 
Moreover, in accordance with the law of March 27, 1882, 
more than 550,000,000 marks of railway debt have been 
extinguished. Although one might justly feel satisfied 



GOVERNMENT OWNERSHIP 265 

if the railways paid the interest on their own capital, 
expectations were so raised by the abundance of the sur- 
plus that the demand was now not merely for a surplus, 
but for a great surplus, constantly increasing with the 
constant increase in the needs of the general administra- 
tion of the state." * 

Successful as Prussia has been, and the same may be 
said of the other German States like Baden, Bavaria, and 
Wurtemburg, the story of the Australian experiences has 
been the reverse. The very conditions of territory and 
economic organization were a bar to the development of 
any railroad system public or private. The burden 
was increased by the policy, constantly adhered to, of 
building in advance of the population. The ease with 
which money was secured was a temptation to do just that 
thing. In Victoria the guarantee of interest was not suffi- 
cient to attract capital, and the colony finally decided upon 
government construction. In order to do this money was 
borrowed and the debt in four years, 1858-62, reached 
the large sum of $38,000,000. The mileage of road was 
but 214, making the average cost $130,000 per mile. In 
the next eight years four millions more were spent in 
adding sixty miles. To-day Victoria has nearly 3,200 
miles of railroad at a cost of about $195,000,000. In the 
other Australian States the governments have built and 
managed the roads. The principle followed in the exten- 
sion of lines has been the sectional one of allowing mileage 
to different parts of the territory, which was politically 
a popular method of determining the need for transporta- 
tion facilities, but likely to result, economically speaking, 
to the disadvantage of the producing and commercial 
classes. However, building and operation have continued 
until to-day the Australian States own 14,500 miles of 
railroad and do a business amounting to $48,715,000. 

Although England practised at home the strictest indi- 

* Journal of Political Economy, vol. i, p. 179. 



266 MODERN INDUSTRIALISM 

vidualism in the building of her railroads, in the colonies 
her representatives under the failure of private capital to 
supply transportation facilities resorted to government ac- 
tion, as is already seen in Australia and is also to he seen 
in India and New Zealand. In the first-named colonies 
the whole burden was shifted to the Government, in the 
second a dual system was practised. There " the whole 
history of railways is one long and unsuccessful attempt to 
get railroads constructed without a state guarantee." * 
But capital was not forthcoming until the rate of interest 
was assured by the Indian Government. In the form of 
rate and expenditure limitations the Government sought 
to hold the private roads to a comparatively high standard 
of operation, but the guaranteed roads were practically 
failures. The dual control led to friction and delay that 
was intensified by the division of authority between the 
home and Indian governments. Says a recent writer : " In 
1869 the system of guarantee lines was abandoned, and 
the new lines up to 1881-82 were state lines. Then an- 
other turn of the wheel took place. Indeed, the system of 
administration seems to vary with the change of ministers, 
the exigencies or accidents of party government, as evil in 
India as it has been in the Australian colonies." Never- 
theless, the Public Works Department of India worked up- 
wards of 5,125 miles of railway and the Indian Govern- 
ment owns outright 18,566 miles of railroad acquired 
through purchase and construction. In the statement of 
government ownership should be included the figures for 
the roads owned and operated by the native States, which 
amounted in 1901 to 3,048 miles. 

In New Zealand the State owns and operates 2,212 
miles of railroad, which yielded a revenue of $5,639,235. 
The figures for Australia are already fresh in mind. They 
are but meager figures when measured by the many rail- 
roads in the United States whose gross earnings are more 

* Col. Conway Gordon, Director-General of Indian Railroads 



GOVERNMENT OWNERSHIP 267 

than $5,000,000,000. Twenty-four roads in that country 
have incomes of between $10,000,000 and $40,000,000 
and fourteen of more than forty millions each ; the joint 
incomes of four railroads are greater than the gross re- 
ceipts of the entire Prussian system and the returns of 
nine companies exceed the gross receipts of all the railroads 
in Germany. 

Government ownership has been carried into other 
fields, such as mining, forestry and telegraph and cable 
operation. The success in the conduct of the last has 
been remarkable, for ease of operation and routine of man- 
agement have made it possible for governments to systema- 
tize the business and to carry it on with the work of the 
postal system. In every civilized country of the world, 
with the two exceptions of the United States and Cuba, 
this has been done. On the Continent the governments 
owned the telegraph lines from the beginning, in England 
they were purchased by the Government in 1869. Effi- 
cient service and low rates have been the results of gov- 
ernment operation, though it is agreed that international 
rates are higher, and the density of population makes it 
possible to secure lower rates than could prevail in this 
country even though the Government did own the tele- 
graph lines. 

The lesson which Europe teaches, says a writer in the 
Railway Age, is that any thorough-going and effective 
effort to regulate rates will arrest the decline of railway 
rates, and prevent the development of large volumes of 
traffic. It likewise brings into politics a serious problem 
bound up in the contention of rival manufacturing and 
producing centers. Australia's contribution to the experi- 
ment is the failure of a democracy to manifest that politics 
can become business.* If these results prove to be results, 

* Series of Articles in the Railway Age, by H. R. Meyer, beginning 
with the number of July 10, 1903, to which I am indebted for many state- 
ments appearing in this and following pages. 



268 MODERN INDUSTRIALISM 

then are the contentions of the expansionist of state func- 
tions and of the state socialist resting on an insecure basis, 
for lower rates and better management are the principal 
arguments for state operation of the means of communi- 
cation. 

The science of rate-making has never gone beyond the 
principle of charging what the tariff will bear. This has 
become fundamental in their determination, but the con- 
flict of sectional interests in Europe has prevented the 
making of rates based upon this principle. The tariffs of 
the German roads have eliminated, almost entirely, the 
discrimination between the large and small shipper. The 
results of this position are seen in the inability of the 
European roads to help producers in their efforts to meet 
falling prices. The crying evil in America is discrimina- 
tion, but the roads of that country have materially helped 
the producer by lowering rates to meet changed conditions. 
In America the cost of carriage has steadily fallen, in 
Germany it has for fifteen years remained as constantly at 
the same figures. 

In the face of the rapid growth of Germany's world 
trade there has been almost no reduction in railroad rates 
during the eighteen years previous to 1900, on the other 
hand the charges of freight carriage on the waterways have 
been cut in two. The Government began canal-building to 
aid the world trade movement ; but having once created the 
canals, which disturbed the whole railroad rate system, 
it refused to change the rates in order to equalize the eco- 
nomic results. It was only upon legislative pressure that 
alterations were finally made. Here was manifested the 
tendency everywhere seen in government ownership to take 
the railway question into politics. 

In respect to improvements the railroads of Germany 
are the same as those of 1875. To raise the roads to 
modern efficiency would not only require a change in the 
types of cars and locomotives, but would necessitate dis- 



GOVERNMENT OWNERSHIP 269 

criminations of work in various sections of the country. 
It perhaps is not altogether an unreasonable conclusion that 
the Germans use the canals because they can not get the 
modern railroad. At any rate every real improvement 
of railroad' service has been made on privately owned rail- 
roads. The development of the track and early locomotive 
was made in England, the longitudinal system of car-con- 
struction was worked out in America, the block-signal sys- 
tem was first used in England, telegraphic communication 
of train orders originated in the United States, air-brakes 
are a product of America, the interlocking switches and 
signals came from England, track improvements began 
with England, equipment and huge locomotives in Amer- 
ica. Under government ownership the managing talent has 
not struck out into new lines as it is compelled to do under 
the rough-and-ready tests of competition. The results just 
presented are manifested again in the failure of the Aus- 
tralian roads to maintain their equipment at its highest 
efficiency. Money used for such purposes is begrudged by 
the legislatures and the surpluses are voted for other pur- 
poses. 

In Prussia the success of making a surplus has come 
to be a demand for a great surplus that shall increase with 
the growing need of the State. In that country it was 
generally understood in 1879 that the surplus earnings 
should not be used to defray the general expenses of the 
State, but as a reserve fund in case of emergency. The 
increasing socialistic tendencies of the State have materi- 
ally increased the expenses and compelled the ministers of 
finance to look for new sources of revenue. Management 
of the railroads under this pressure has been on the basis 
of the budget and not in the interest of trade and com- 
merce. The increase in income from the operation of 
the railroads has been due to the growth of Germany and 
not to the action of the management. 

The application of the rate-test to the tariffs of the 



270 MODERN INDUSTRIALISM 

state railroads brings out clearly the fact that the cost of 
carrying freight in Germany and Australia is much higher 
than in England and the United States. Back of the rates 
that are made on the state roads is a good deal of political 
history worthy of reference. The arrangement of rates is 
never made without political influences brought to bear by 
the representatives of specific districts in the legislatures. 
Compromise thus becomes the basis of the rate-making. 
Nor is this the limit of the political influences. The pur- 
chase of equipment and maintenance of standards are ren- 
dered difficult when money is refused by a legislature, and 
finally the expectations of voters in reference to the paying 
power of a road materially affected the management and 
the methods of accounting. The evidence points strongly 
to failure in rate-making by a state railroad system. 

Prussia, however, may be said to have pretty well solved 
the problems of administration outside the making of rates. 
Even this feature of government ownership may be modi- 
fied by the general councils of officers and shippers now 
held in Germany three or four times a year. Complete 
understanding between the managers of the roads and the 
shippers will in time alter the stiffness of the present 
system. What may be accomplished under a monarchy 
by a centralized government is a markedly different thing 
from the results likely to come from a government under a 
democracy. Australia stands as an example of democratic 
administration. The Governments are by no means so 
free from political influences as those of Germany and do 
not offer such excellent results. But on the other hand 
the experience of Australia would be nearer what might 
be expected in England or America, were the state system 
introduced, rather than that of the German States. 

The administration of the Australian railroads is pretty 
well typified by a statement of Sir George Turner to the 
effect that no man of the class (naming a number of high- 
grade managers) would leave England to enter the services 



GOVERNMENT OWNERSHIP 271 

of an Australian colony. The parliaments have insisted 
upon the retention of staffs created under the political man- 
agements of former administrations and have interfered 
with the transactions of the railroad departments for polit- 
ical reasons. The railroads are starved because of the 
heavy demands upon the public treasury for other pur- 
poses, the result is poorly equipped roads carrying small 
train-loads at high cost per ton mile. Expenses are not 
always paid out of current income and resort is had to bor- 
rowing that materially increases the public debt. Demands 
of all kinds are made by every class from every section and 
these are of such a nature that they preclude anything like 
management on the long-sighted principle; the roads are 
run for the present and not with the future in view. The 
errors of judgment are not written off as in the case of a 
private company but are laid upon the taxpayer, whose 
very industry is burdened by a condition over which he 
has no control. The results in Australia may be summed 
up in three brief statements: (1) Systematic borrowing 
until the State debt is beyond any reasonable limit; (2) 
dependence upon the State for employment without refer- 
ence to the product; (3) reliance upon government bor- 
rowing for continuance of prosperity. These in addition 
to high rates and inefficient management complete the 
record of the Australian systems of state railroads. 

The arguments for state activity in industrial fields 
are the correction of abuses, elimination of corruption from 
politics, greater care of human life and the lowered cost 
of operation. The abuses corrected are followed by others 
of a different nature, corruption is not eliminated, but if 
possible increased, and transportation, the essential thing, 
is not conducted at lower rates. It is replied that a great 
bureaucracy is created, an appalling national debt piled 
up, management made inefficient, wasteful and unprogres- 
sive. The problem is greater than is suggested by either 
group of arguments. It is a problem that depends upon 



272 MODERN INDUSTRIALISM 

the temperament of a people, their government and eco- 
nomic conditions. It is therefore impossible to say " a 
priori " that a government shall own and operate its great 
industries. Each state must determine what things it can 
do best. The day of laissez f aire has passed and regula- 
tion or ownership will be the method of conducting indus- 
try. Experience in trusting elaborate industrial functions 
to a democracy is not large, and where tried not con- 
vincing in its results. A nation must first have the neces- 
sary civic capacity before it can successfully cope with 
the great industrial problems, and even then the union of 
economy and enterprise is not assured. In the control, 
even of the ownership of monopolies, the state has a field 
of action to which it may well confine its efforts. 



CHAPTEE V 



CONCLUSION 



At the opening of the twentieth century production 
had reached enormous proportions : in every civilized land 
was heard the hum of cotton-mills, railroads and telegraph 
provided adequate and quick means of transportation and 
communication, organization of capital and labor was 
carried to unheard of proportions, markets were world- 
wide and products enormous in quantity. To reach this 
position in industrial organization the world had cast aside 
the stage-coach for the railway train, accepted the gigantic 
steamer in lieu of the wooden sailing vessel, discovered the 
process of making Bessemer steel, invented the sewing ma- 
chine and a dozen devices of equal importance, created a 
factory system, seized upon and colonized foreign lands, 
accumulated savings and capital, formed gigantic corpo- 
rations and with it all produced a great number of diffi- 
cult problems that were to press harder and harder for 
a solution. 

The nations selected are representative of that growth, 
and also of three distinct phases of national development. 
England was the oldest of these, for her industry and na- 
tional organization had taken root long before it had done 
so in the other lands. With iron in her possession she was 
able to put the early inventions into material form and 
under the protection of the Napoleonic wars to establish 
her factory system upon a firm foundation. Hampered 
19 273 



274 MODERN INDUSTRIALISM 

in the development of a wider commerce by the existence 
of medieval legislation she cast it aside and altered, 
wherever needful, her institutions to the demands of a 
growing national organization. In the highways of the 
seas this nation established colonies and brought under 
one sphere of influence the peoples of many lands and 
climes, and having done this sold them the products of 
her looms, forges and factories. At the time of the indus- 
trial revolution her political machinery was clogged with 
an arbitrary ruler, a rotten borough system and some cor- 
ruption. This she has changed by establishing her ablest 
men in the seat of government, by readjusting political 
rights and extending the suffrage, by maintaining a close 
relation between her people and Parliament, and by re- 
quiring a quick response of the Government to the wants 
of the people. She has passed from an aristocracy to an 
oligarchy, safeguarded by a democracy, from a domestic 
system of manufactures to the factory system, from part- 
nership organization to corporation and combination, and 
finally from a laissez f aire conception of government to one 
of regulation. 

To America the representatives of many nationalities 
came seeking the free lands and the equal opportunity of a 
new country. The basis of American growth has been free 
land, and the movement of the successive waves of human 
life seeking these opportunities afforded by nature, has 
created a democracy dominated by an intense individual- 
ism. When by their own efforts the people were unable 
to create a roadway, a canal, or railroad they called upon 
the state to undertake the task, but in most cases pri- 
vate companies did the work, although when these com- 
panies were able through political influence, they secured 
the financial aid of the state. So the American Common- 
wealths never occupied the prominent place of the German 
state nor entered the regulation of industry to the degree 
that England has done in the development of her organiza- 



CONCLUSION 275 

tion. American industrial growth in the first hundred 
years was not sudden ; no revolution disturbed her develop- 
ment ; she passed gradually from the domestic system to 
the factory, and somewhat more rapidly to the use of the 
canal and railroad. This was true up to the Civil War, 
possibly 1873, but after that date progress was rapid, ma- 
chinery was used wherever possible, capital enlarged, or- 
ganization carried to its highest efficiency, output enor- 
mously increased, free lands rapidly absorbed and resources 
monopolized under the land laws. In the indifference 
of individuals to the general welfare legislation has been 
framed and administered for individual and sectional 
benefit. A plutocracy has gradually unfolded itself with 
its baneful influence on law ; misrule, political corruption 
and irresponsibility have grown with the complicated or- 
ganism. The United States is a land of great resources, 
of democracy, of party government, of commercial develop- 
ment and of serious problems aggravated by the inade- 
quacy of the governing forces. 

The German Empire was the result of a series of politi- 
cal and economic events. For the first few years her ener- 
gies were devoted to the organization of a centralized 
governing machine which was successfully developed. Her 
industry was in many forms ; some of her factories were 
highly organized, others still adhered to the methods of an 
older regime ; her agriculture for the most part was carried 
on by small farmers and her transportation facilities con- 
trolled by many states and companies. To-day, by careful 
and consistent legislation on the part of the Government 
and by the use of scientific and modern methods on the part 
of her manufacturers and merchants, she has created a 
great industrial organization. But most noticeable in it 
all is the law and order, the subordination of the merely 
commercial element and the domination of systematic and 
thorough government. Thus, there appear in the three 
lands a system of regulation, one of interference and an- 



276 MODERN INDUSTRIALISM 

other of government control. Each has been developed 
under different circumstances, but the application of the 
successful system in one land to the problems in the others 
is prevented by the conditions existing in the different 
countries. To put it in other words, the experiment can 
not be separated from the form of government or the in- 
dustrial conditions prevailing at the time of its trial. 
Nevertheless, there are some general conclusions that may 
be reached in the experiences of the three countries con- 
sidered in Part One. The presentation of these is post- 
poned until the latter part of the chapter. 

Industry is complicated. This is the theme of Part 
Two, in which are considered the extractive industries, 
transportation, manufacturing, forms of organization and 
commercial institutions. The basis of all wealth must be 
the application of labor to the earth ; when labor is supple- 
mented by capital the exploitation of the earth goes on 
more scientifically and more successfully, agriculture 
alters its form and is adjusted to the changing conditions, 
forest management appears as a science and mining be- 
comes efficient and thorough. 

The extractive industries, and consequently all indus- 
tries, are affected by the law of diminishing returns. Man 
is compelled on this account to exert greater skill, develop 
better systems of transportation and more efficient methods 
of manufacture. What he has done in this direction is to 
be seen in the three great countries of the book. Agricul- 
ture on a large scale, the " cattle-raising " method of using 
the soil, the organization of factory and foundry in Eng- 
land, Germany and the United States, the modern railroad 
systems, standardization of machinery, concentration and 
specialization of industry, have been introduced and estab- 
lished in all these lands to increase the efficiency of capital 
and labor. The demand for more capital and a better 
organization of it has been met by the corporation, com- 
bination and great cooperation, and the need for exchange 






CONCLUSION 277 

facilities by the bank, clearing-house, speculator and the 
mercantile agency. The whole forms an industrial system 
complex but automatic. Its operations do not rest upon 
government action, though protected and guarded in all 
of its parts by the agency of the state, but depend upon 
the forces and powers at work in the organization itself. 

The growth of the industrial organization in the ad- 
vanced commercial nations is truly marvelous. This de- 
velopment has been accompanied through the numerous 
changes, alterations and adjustments, by a number of 
serious and difficult problems which have been met in Ger- 
many by adequate legal restrictions and political devices ; 
in Great Britain by early recognition of the problems in- 
volved in the industrial progress of the nation; and in 
America by a tardy acceptance of the difficulties after the 
industrial organization had outgrown, in at least some par- 
ticulars, the political organization. 

It is at this point that the third part is opened for the 
consideration of the problems that come to view in the 
brief history of the three nations and the short description 
of industry. Government and industry are thus brought 
into contact. What attitude shall the state take in its rela- 
tion to the problems thus arising? How far shall it go 
in an honest endeavor to solve the difficulties ? The an- 
swer is not positive; it can at best be conditional upon the 
character of the government and the stage of industry. 
To such reply as can be made the remaining pages pro- 
ceed. 

These problems are the outcome of organization and 
not of nature. Nature provides the soil and the resources 
for the use of men, but almost at once in the formation of 
the crudest and most primitive groups warfare and conflict 
ensue in the struggle over the control of the feeding-place 
and the division of food. The most advanced form of the 
struggle is seen in the efforts of nations to control neutral 
markets, colonize new lands and produce on a national 



278 MODERN INDUSTRIALISM 

basis. These efforts require capital in large amounts and 
organized on a gigantic scale, but they also involve the 
aggregation of masses of men in cities and centers of in- 
dustry. 

Inside of the national group every exertion is made to 
secure wealth, power and honor. The system of private 
property creates a capitalistic class which by its very ex- 
istence presupposes another body of free wage-workers. In 
time the two groups become socially separated, but are 
brought together in acts of production by freedom of con- 
tract and the wages system to be again separated as the 
owners of the means of production and of the personal 
elements in production. This cleavage between the two 
groups means sooner or later a distinct social movement 
through which an effort is made to overturn the existing 
social order to suit the interests of the propertyless class. 
But the recognition of the specific problems arising under 
the present form of production within the existing order 
may forestall, perhaps actually modify, the movement 
against it. 

In the main, the basis of the present social order is 
undoubtedly found in private property and the freedom 
of contract. In its development private property has been 
greatly modified and it has not yet reached its final form. 
With this growth of property rights has come an increase 
in the mass of what the economists call free goods. These 
are found in an enlarged body of knowledge, expired 
patents, parks, forest lands, and enjoyments provided the 
people by municipalities and national governments. In 
addition to this enlargement of public enjoyments there is 
the feeling, a more and more intense one, that private 
property is a social trust to be administered carefully and 
wisely with some regard to the community in which its 
possessor lives. The law, too, has attempted to restrict 
incomes due to monopoly profits and by proper classifica- 
tion to provide for the regulation of inheritances, expect- 



CONCLUSION 279 

ing through these methods to change the distribution of 
wealth and consequently to open the opportunities now 
held by a few to a much larger group. Every generation 
sees a marked change in the movement and ownership of 
property. The state by an easy and natural method can 
exert a great influence upon wealth distribution by estab- 
lishing wisely framed inheritance laws. This in itself 
is sufficient to indicate that the time for a social revolu- 
tion has not yet been reached, for it is possible to mate- 
rially modify the present system without destroying its 
best elements. 

Freedom of contract, in the laissez faire sense, may 
lead to many abuses, but even under that theory of govern- 
ment the common law takes it for granted that the persons 
contracting shall not be coerced. It has been clearly 
demonstrated that free unregulated contract results in a 
degrading dependence of some upon others. Professor Ely 
says in his presidential address before the American 
Economic Association : " The coercion of economic forces 
is largely due to the unequal strength of those who make 
a contract, for back of contract lies inequality in strength 
of those who form the contract. Contract does not change 
existing inequalities and forces, but is simply the medium 
through which they find expression. Wealth and poverty, 
plenty and hunger, nakedness and warm clothing, ig- 
norance and learning, face each other in contract, and find 
expression through contract." The problem lies deeper 
than the contract or its form; it rests upon the forces 
making for inequality. 

The presence of a democracy in a state complicates the 
problem, particularly if that state has no restricting mon- 
archical system. In its early history a popular sovereignty 
may be one in which the citizens are on an equal material 
basis and the distinctions between men largely of an official 
nature. In time the satisfaction of material wants be- 
comes the dominant aspiration and wealth the means by 



280 MODERN INDUSTRIALISM 

which power is secured. Power and wealth, then, are 
synonymous, religion loses its hold on men, the sentiment 
of loyalty so manifestly strong in a monarchy declines and 
selfishness becomes the rule of life as well as the motive 
for participations in the activities of government. Men 
come to confuse personal ends with those of the state, re- 
garding the government of the latter as a means to secure 
their purpose. There is then brought into the political 
life a mercenary spirit that is exceedingly demoralizing to 
the morale of citizenship. Public welfare is overlooked 
and important problems are constantly met by restrictions 
and difficulties. The modification of the disturbing ele- 
ments — private property and freedom of contract — depends 
upon the democracy ; but if the democracy is a mercenary 
one, demoralized by the political methods of corporations 
and railroad companies, there is little hope for the altera- 
tion of property rights by inheritance laws and adequate 
taxation, and as a consequence a social movement, directed 
by a class spirit and a definite code of action, appears as a 
distinct factor in the life of the state. That social move- 
ment is based upon three elements ; first, an existing order 
of society resting in the main upon the methods of produc- 
tion and distribution of the material goods necessary to 
human existence. Second, a class which is discontented 
with the existing conditions, and third, an ideal which the 
discontented hold up and express in programs and de- 
mands. All of these elements are present in modern states. 
The movement forward from the simplicity of the agri- 
cultural stage is marked by greater inequalities of material 
conditions and a hardening of class lines. It is evident 
that a forestalling of these difficulties must be met by wider 
activity on the part of the state, and a reasonable change 
in existing institutions and methods of production and 
distribution, in order to withstand and prevent anything 
like a hasty and ill-considered social movement. 

The problem centers about the phrase " Equality of 



CONCLUSION 281 

Opportunity. " The desire bound up in it expresses itself 
in the demand for social reforms that shall give a new free- 
dom for race development, " We want," says Mr. Webb, 
" to bring about the condition in which every member of 
society shall have a fair chance to use and develop the gifts 
with which he happens to be born." A few influences are 
now at work in this direction : these are public education, 
sanitary laws and their administration, the building of 
better tenements, the shortening of hours of labor, the pre- 
vention of child labor, establishment of banks, charity or- 
ganizations and philanthropic enterprises. But they are 
inadequate to withstand the great industrial forces con- 
stantly making for inequality. There can be no denying 
that land and property ownership, whatever the economic 
grounds of their defense, develop influences working to- 
ward inequality in production and distribution. Their 
tendency is constantly in the direction of inequality of 
income, and that in turn works toward inequality of 
opportunity and production. One follows the other. In- 
terest and rent go as income from the product to a distinct 
class, which reduces very materially the share of the 
worker, and even this share may not increase proportion- 
ally with the growth of the product on account of monop- 
oly features of ownership. 

To-day the free lands of the United States are taken 
up and settlers are paying railway companies for acreage. 
This statement of fact is really the evidence of the closing 
of a remarkable economic period: that of free land and 
opportunity in the United States. With this unique fea- 
ture of economic growth eliminated, the situation in the 
United States corresponds more and more with that exist- 
ing in Europe, where hard and fast lines exist between 
grades of workers. Products, as now determined by the 
forces of demand, have gone beyond the power of home 
consumers to use and are disposed of in the friendlier 
markets of foreign peoples. A limit to commercial expan- 



282 MODERN INDUSTRIALISM 

sion of this kind exists in the power of neutral markets to 
expand and the probability of adding to national terri- 
tory. In time, demand, through the hardening of class 
distinctions and the restrictions just referred to, comes to 
be more and more stable. The incentive to the use of in- 
ventions and the extension of commerce are not great 
enough to break over a routine of production in which the 
requirements for machinery, raw materials and labor re- 
main nearly the same. 

Under the present system and its possible results the 
future of the worker does not seem to be secured. Economic 
forces work against the indefinite extension of markets and 
continued change in methods of production ; institutions, 
on the other hand, of property and organization separate 
classes, and, with the rapid expansion of population, tend 
to harden the lines between them. Under these conditions 
the discontent of the laborer continues, not only in one 
land, but wherever he is associated with machine pro- 
duction. 

With the filling of countries with people by immigra- 
tion commerce and invention are restricted, because there 
are then new regions to open up, and an outlet for the am- 
bitious and discontented must be found in some other way 
than this traditional one, so long practised in commercial 
lands. The method of satisfying discontents has been 
to extend the suffrage to larger and larger numbers of 
workers and also to grant more extended privileges through 
the enlarged functions of the government. In a demo- 
cratic state the tendency is toward wider suffrage, even to 
universal suffrage, because the ruling class find it difficult 
to carry their policies without a greater voting power, but 
the masses have begun to reflect that this power of the bal- 
lot can be used for their own well-being, through the control 
of the governing machinery of the state. The use of such 
a power is, however, fraught with a great danger, a dan- 
ger always inherent in a democracy, but in this case em- 



CONCLUSION 283 

phasized by the wider activities of the state. That danger 
is the possible loss of individual liberty and the dominance 
of incapable and demagogic leaders. To these are but two 
possible offsets in a state not yet socialistic. These are the 
maintenance of civil liberty and the submission of the 
people to rational guidance. 

This is, however, a question of ultimate control. There 
are immediate problems that press for some kind of a 
solution which are really more important at present than 
the greater, but more distant questions, which relate to the 
abolishment of property and wages as distinct features of 
a social system. The present methods of production and 
distribution are marred by a number of things, such as 
excessive loss of life, too great power of corporate bodies, 
monopoly, and inadequate compensation for services ren- 
dered. The story of production is filled with incidents of 
deaths, injuries and disease on account of disabled ma- 
chinery, poorly guarded gears and belts, unsanitary and 
inhuman conditions of manufacturing. Thousands and 
thousands of men and women give up their lives every 
year in order that goods may be produced under miscon- 
ceived notions of cheapness. 

The figures are more or less familiar to every one, but 
the state has been slow to act. Here is a distinct duty to 
perform, for under the present condition the burden ulti- 
mately falls upon the state in the care of paupers and crimi- 
nals created through the loss of bread-winners, or the lower- 
ing of efficiency by sickness and disease. Factory acts have 
been passed in large number, but the requirements for 
safety and freedom from disease have by no means been 
met. Inspection of premises is not well done and even 
when done is not frequent enough to check the real abuses. 
More legislation and a greater exercise of police power are 
all that is required to change what is a real menace into a 
minor part of the problem. 

In every civilized country there has been a marked 



284 MODERN INDUSTRIALISM 

increase in the number and size of industrial corporations. 
As has been pointed out in past pages many of these, the 
majority in fact, were created with excessive capitalization 
for speculative purposes. There is a large reserve power 
still remaining to the Government in the regulation of the 
corporation, especially in the case of railroads. This 
power rests upon something wider than the monopolistic 
nature of the services rendered by them ; it is in fact im- 
bedded in the law, for corporations are creatures of the 
law and can in consequence of the privileges granted by 
the state be subjected to special responsibilities. There is 
no reason why directors should not be held accountable for 
service rendered by the corporation, and investments made 
in the shares of the company. The promoter should not 
escape ; he too should be required to make good the induce- 
ments held forth by him to encourage people to invest in 
his enterprise and the small stockholder should be pro- 
tected. When it comes to monopoly the problem is equally 
definite. The state has the power to tax and to regulate. 
The enforcement of wise laws resisting monopoly is the 
essential element in the change of conditions, for without 
that weapon trusts have little power to raise prices beyond 
their natural limit. 

The wage-earners, and particularly those following the 
socialistic parties, complain constantly of too low wages 
and a small share of the product created. Here is a prob- 
lem as important as those of corporation and monopoly. 
The option offered is some form of the wages system 
(which must always exist under a capitalistic form of so- 
ciety) or the complete elimination of the wages system 
and the introduction of a form of share which shall de- 
pend upon abilities or needs. If the present society is to 
continue the wages system will be a part of it, but by in- 
troducing profit sharing, gain sharing or collective bar- 
gaining, it is possible to so modify it as to render greater 
justice in the division of the product. Whatever may be 



CONCLUSION 285 

said of these methods of determining wage contracts, they 
give to the wage-earner an incentive and a larger share 
of the product. The development of employing and trade- 
nnion groups has placed special emphasis upon the col- 
lective bargaining method of determining wages. For its 
final outcome there must be an increased responsibility on 
the part of the bargaining groups in their relation not only 
to each other, but to the public. With monopoly power 
limited and restricted by law the wage-earner ought to se- 
cure that portion of the product which is due to the in- 
creased skill of the worker, because of his power in the 
group organization to modify the old wage contract. In 
times of depression, however, the large capital organiza- 
tion can dictate terms of employment, but the possibility 
of modifying the wages system and the hope of actually 
doing so will retain many men in the ranks of the con- 
servatives long after the more radical have given up the 
hope of anything better under a capitalistic regime. The 
continuance of the present system depends upon private 
property, private capital, labor and the wages system. 
The breakdown of any one of these materially affects it, 
in fact so much so that every effort should be made to 
modify them so as to make the worker satisfied with his 
share. 

The solution of such difficulties as are presented in the 
immediate problems referred to in the last paragraphs 
requires some attitude on the part of the state. The indi- 
vidualist believes in the minimum of state interference, 
justifying it, when necessary, on the grounds of forcing 
equal conditions: namely, of giving economic principles 
an opportunity to act without restrictions, moral, ethical 
or political. He believes that a wide suffrage will place the 
government in the hands of the emotional rather than the 
intellectual. He therefore looks to a limited suffrage and 
an increased responsibility of officials as the two things 
necessary for a betterment of present conditions. In this 



286 MODERN INDUSTRIALISM 

view he has much to justify him, but the regulationist says 
we must have systematic legislation, for the institutions 
of government and industry are not well enough formed to 
give the service and freedom from abuse that a people have 
the right to expect. Consequently this group of advocates 
present certain legislation of a curative and preventive 
kind which they expect shall be enforced and carried out 
by the officers of the state. They also present a third re- 
quirement, the elimination of political fraud from the con- 
duct of government. Each and all of these are based upon 
the notion of a wider interest in the state and its functions 
on the part of the people, and further upon the idea, con- 
stantly becoming clearer, that the state is a means to an 
end. Still, the advocates of socialism, various as they are, 
regard the state as a final form of social organization ; but 
in justice it should be repeated that the form and functions 
are materially different from those now devolving upon 
the state. 

The socialist group may be divided into those who ad- 
vocate a sporadic socialism, bi-socialism and universal 
socialism. The first are mere extenders of government 
functions into the realm of government ownership; in no 
sense do they alter the foundations of the present society, 
but the bi-socialists believe that land and all monopolies 
should be owned, or heavily taxed to the point of forcing 
ownership on the part of the government. The universal 
socialists do not think the extension of state functions or 
the elimination of private property from the industrial 
organization is sufficient. The whole industrial order 
must be in the possession of the people, operated and owned 
by them, and the products shared among them without the 
toll-levying process now in vogue in the industrial society. 
These are the possible attitudes of the state toward the 
problems, that of individualism content in the main with 
the existing conditions, regulation by legislation and real 
enforcement of the law, or socialism, in which the founda- 



CONCLUSION 287 

tions of the present society are greatly modified or entirely 
cast aside for another form. 

In the main the problems have fallen, so far as their 
evil effects are concerned, upon the wage-earners, though 
here and there are small producers and merchants who, be- 
cause of a trust organization or the high wages and ex- 
actions of trade-unions, have lost their places in the busi- 
ness and trade of the community. Nevertheless, whatever 
the difficulties or whatever the class upon whom the burden 
may have fallen, the fact is that the form of organization 
is largely to blame for the serious complications now so 
clearly seen. Industry on its mechanical side has devel- 
oped faster than its administration and management, 
monopoly has grown much more rapidly than the powers 
and organization of the state, and the same may be said of 
private property, railroads and the other institutions en- 
gaged in producing and distributing commodities. The 
control of these factors is, in the United States and Eng- 
land, where male suffrage exists, in the hands of the class 
suffering from the evils. This is, however, but a nominal 
control, for the actual solution of the problems involved 
can be attained only under rational guidance, even though 
the management and direction of the government may be 
in possession of the wage-earner, for the difficulties will 
appear in but another and more aggravated form if not 
met in a scientific and non-partisan way. And if the solu- 
tion carries the state into socialism individual liberty is 
materially jeopardized by what must ultimately be an 
oligarchy of power. More and more the situation clears 
and it is seen that a radical departure from fundamental 
principles is impossible, the solution must be attained by 
working out from the existing conditions and modifying 
them. 

In America the situation is tenser and the problems 
more difficult than in other lands. There the development 
has been a rapid one ; great freedom of action was possible 



288 MODERN INDUSTRIALISM 

in the settlement of a pioneer country and the law was by 
no means a powerful force in maintaining order. Atten- 
tion was given to material development, and in a short time 
state and municipal organizations had been outgrown, just 
as the management of industry has been surpassed by its 
technical growth. This was a serious defect, emphasized 
by the failure of the courts to adjust such legal institutions 
as did exist to the growing economic order and the inelas- 
ticity of constitutions and governments. The result is 
what might have been expected, an overwhelming organiza- 
tion of industry standing side by side with a state that is 
puny when compared with it. Awakening to the situation 
the state has attempted to enlarge its powers, but has been 
restricted by the inelastic American legal institutions. So 
the problem becomes a double one of political development 
and industrial control. 

Great Britain has no written constitution and on ac- 
count of that fact her institutions possess great elasticity, 
for each judicial decision, each parliamentary act, may 
change her constitution to suit the real needs of the hour. 
It must not be thought that England has on this account 
no problem ; she is as an actual fact brought face to face 
with difficult questions which are, however, almost wholly 
economic, involving the comparatively simple questions of 
trades-unions and corporate control and the more difficult 
matters of wealth distribution. She has no problem of State 
power and government jurisdiction. The same is still 
truer of Germany, where the state organization and legal 
institutions are well abreast of the industrial development. 
Her economic problems are not complicated by the presence 
of a weak state nor by an organization fundamentally as 
strong as the state itself. Because of the hardened class 
lines and the restrictions of opportunity a formidable class 
movement has come into existence in Germany, but it 
is even now being modified by an extension of privileges 
and an enlargement of government functions that should 



CONCLUSION 289 

make for a considerable betterment of wealth distri- 
bution. 

Nor is it possible from the so-called practical view- 
point to meet the difficulties of democratic control by re- 
stricting the suffrage of male voters. Such an act on the 
part of the state would increase the discontent and pre- 
cipitate a revolution because of the reversion of what 
might be termed a right. Moreover, the restriction of the 
suffrage does not touch the real problem of inequality of 
opportunity but makes it more manifest. The tendency 
is quite in the contrary direction ; namely, that of extend- 
ing rather than restricting the suffrage. Members of the 
state ask for a system of government that will meet the 
problems, immediate and future, with some certainty of 
success. Restriction of the suffrage still leaves the problem 
with but the added advantage of a more intelligent voting 
body, but who under the notion of occasional government 
interference would exert but little influence on the actual 
difficulties. It is certainly clear that state action must be 
resorted to in order to avoid the waste of human life, 
wealth, capital and energy now going on in modern society. 
The struggle between individuals and groups of individ- 
uals must mean the continuance of waste and unless checked 
must result in the evil consequences already pointed out; 
however, it will not be forgotten that any action on the part 
of the state will affect the freedom and liberty of the indi- 
vidual just as the absence of such action will be sure to 
breed anarchy* On the other hand the conduct of industry 
by universal suffrage brings a socialism in which the rule 
is given over to the emotional rather than the intellectual 
and introduces a makeshift machinery of society sure to 
act hastily and ineffectively when dealing with such a vast 
undertaking as the management of a modern society. 

Whatever may be said of the present system it has the 
great advantage of automatic action. It is furthermore 
a system that may be materially modified and bettered 
20 



290 MODERN INDUSTRIALISM 

without destroying the work of centuries. Nor has the 
success and magnitude of state activities been of such a 
nature as to argue overwhelmingly for a complete reversal 
of that system. The state can not do everything; it is 
not, in fact, argued by anybody that it should do every- 
thing, but it can not even do well some things, for some 
must be left to individuals and some to the state to do. 
That there are things now done by individuals ineffect- 
ively and wastefully is fully recognized, but through the 
action of the state those individuals can be forced to do 
their part satisfactorily and well with less risk and cost 
to the taxpayer and greater benefit to the general welfare. 
It is well to understand that individuals can not per- 
manently assume the burden of progress now thrown upon 
them in the use of machinery, change of organization form 
and the growth of wealth. The state must protect the dis- 
placed and protect itself against the exploitation of its 
citizens whether in the employment of labor or the sale of 
commodities. Nor in this connection should it be over- 
looked that in any progressive society there will always 
be some derangement which the state can not under any 
circumstance altogether correct. Still, even if it can only 
modify, the necessity of effort exists and should be made. 
But it is not possible to declare in advance that the state 
shall in its attitude on these questions follow the doctrine 
of interference, regulation or ownership. Some things the 
state should let entirely alone, others it should control and 
regulate and others actually conduct. The purpose of the 
state is to develop social unity, and especially is this true 
when the competition of nations with each other is con- 
sidered. It is national unity and national solidarity that 
count in the contest. To secure such unity is the problem ; 
the history of the different lands and the complications of 
industry show that it can not be attained in the same way 
or by the same government action. In England a better 
industrial organization is needed; in America a more 



CONCLUSION 291 

efficient political organization and the subordination of the 
industrial to it ; and in Germany a more widely developed 
industrial organization and larger political and social 
functions for the people. Each land has its own problem, 
and in so far as the conditions are the same light may be 
thrown upon it by the experience of others. In the United 
States it is clearly demonstrated that we must have stronger 
political institutions, a sense of duty, and a more enlight- 
ened public opinion before we can talk about the enlarge- 
ment of duties and functions of the state in the manage- 
ment and conduct of industry. 



INDEX 



Adams, Charles F., 263, 264. 

Adams, Prof. H. C, 239. 

Agriculture, capitalistic, 30; di- 
minishing returns, 112; Eng- 
lish, 1817, 30; advance in 
England, 31 ; in eighteenth 
century, 20, 94, 96; inter- 
changeable parts of machin- 
ery, 145, 146; new in Eng- 
land, 23 ; ranch system, 91 ; 
United States, 43, 45, 46, 91- 
94; village system in Ger- 
many, 96-98. 

Atbara River, incident of bridge, 
145. 

Australia, administration of 
railroads, 270, 271; attitude 
of government, 262 ; experi- 
ence in railroad ownership, 
265; results of, 267, 268. 

Babbage, T., on manufacturing, 
154, 155. 

Bank, 185, 186; bills of ex- 
change, 190; functions of, 184, 
185; sale of stock, 192. 

Banking, early, in England, 21; 
English Act, 1844, 31. 

Banks, and corporations, 165. 

Bargaining, collective, 158, 172, 
210, 211. 

Berlin, progress of, 128. 

Bessemer, Sir Henry, 6; the 
steel process, 109. 



Bismarck, view of state func- 
tions, 258. 

Brokers, bill, 187. 

Business, old and new, 10; poli- 
tics, 257. 

By-product, 153 ; a phase of in- 
dustry, 134; in England and 
Germany, 155. 

Canal, contest with railroads, 
60; English, 26; Erie, 53, 54, 
59; first, 59; German system, 
74, 75; rates, 129; Suez, 36; 
use of, in Germany, against 
railroad, 269; waterways, 127, 
129. • 

Capital, advantage of, 148; 
amount for corporation, 168, 
169; organization of, 16; con- 
tracts, 228; corporations, 158, 
159; freedom of contract, 200; 
labor, 157, 158; shares, 161. 

Capitalist, and domestic sys- 
tem, 138; shareholder, 238; 
and socialism, 212. 

Census, United States, on local- 
ization of industry, 150, 151. 

Centralization, tendency toward, 
263. 

Charter, of corporation, 161. 

Cities, progress of Berlin, 128 ; 
representation in Parliament, 
28; transportation, 116. 

Civil War, and changes, 61 



293 



294 



INDEX 



Clark, J. B., 66, 67. 

Clearing House, 188; stock, 192. 

Coal, element in industry, 20. 

Cohn, Gustav, 264. 

Colonies, attitude of England 
toward America, 47, 48; Eng- 
lish, 38; and railroads, 266. 

Combinations, 152, 162, 163; in- 
dividualism, 225, 226; in the 
United States, 166; labor, 
161; methods of, 166-168; 
regulation of, 247, 248 ; re- 
strictions upon, in Germany, 
165; securities, 191, 192; 
trade-unions, 213, 214; under- 
writers, 169; see Corpora- 
tions; threatening state, 240. 

Commerce, development of Ger- 
man, 77, 78; effects of War of 
1812, 52; English, 21; Ger- 
man, 72, 73; institutions of, 
176-194; national, 10; of 
United States, 64; schools of, 
78, 79. 

Common law, and conspiracies, 
229, 230; individualism, 220; 
prices, 249. 

Common rule, policy of trade- 
unions, 173. 

Competition, evolution of, 215; 
group contests, 211; individ- 
ualism, 224, 239; outcome, 
205 ; reactionary forces, 207 ; 
restrictions upon, 220; re- 
sults, 204, 238, 257; tendency 
of, 235, 236, 237. 

Conspiracy. See Common law. 

Contract, and common law, 220, 
221; freedom of, 200, 218, 
278; labor and freedom, 226, 
227 ; Mogul Steamship case, 
222, 223; obligation of, 222. 

Cooperation, 211; and banks, 
165; labor, 174, 175. 

Corn laws, English, 31. 



Corporation, Anti-Trust Act, 66; 
capitalization, 168, 169 ; Clark 
on monopoly, 66; competition, 
64; control of, 241; dissolu- 
tion of, 162 ; early English 
acts, 34; English steamships, 
37 ; early, in United States, 
55, 56; English, 40; elements 
of, 160; government, 203; 
grant of, 224; joint-stock com- 
pany, 160; large, 164; North 
River Sugar Refining Com- 
pany, 225 ; principles of, 158 ; 
problem of, 284; responsibil- 
ity of directors, 80 ; state, 
239; United States Steel Com- 
pany, 142; voting trust, 164. 

Cotton, trade with Great Brit- 
ain, 54. 

Credit, and banks, 184; instru- 
ments, 183. 

Crisis, 193, 194. 

Democracy, complicates prob- 
lem, 279; England and United 
States, 274, 275; industrial 
problems, 200; state socialism, 
261; wealth, 203. 

Department store, advantages, 
179. 

Diminishing return, in agricul- 
ture, 112; law of, 111. 

Education, school of commerce, 
78, 79. 

Egypt, tobacco industry, 147. 

Electricity, use in small ma- 
chines, 143. 

Elevators, 130; grain storage, 
125, 126. 

Elkins bill, railway legislation, 
246. 

Ely, Prof. R. T., on contracts, 
279. 



INDEX 



295 



Employer, remedies open to 
strikes, 231, 232. 

England, agriculture, 94-96; at- 
titude toward American col- 
onies, 47, 48; attitude of gov- 
ernment toward railroads, 
262; conditions, 1776-1815, 
29; character of organization, 
4, 5 ; character of problems, 
288 ; colonies, 38 ; combina- 
tions, 165 ; conditions, 1760, 
20-23; 1815, 30; contrast 
with colonial experience, 266; 
control over railroads, 243, 
244; cooperation, 175; corpo- 
rations, 40, 247, 248; corpora- 
tion laws, 34; economic condi- 
tions, 33, 37, 40, 41, 273; 
English goods in the United 
States, 52 ; industrial changes, 
20-41; food supply, 31; fran- 
chise, 38, 39; government 
action, 205 ; functions, 40 ; 
growth contrasted with United 
States, 42 ; mineral resources, 
105 ; pioneer producer, 9 ; 
population, 1769, 21; 1800, 
44; 1815, 28; restrictions on 
export of machinery, 49 ; rail- 
road legislation, 35, 36 ; trade- 
unions, 209. 

Equality, economic, 205, 206; 
opportunity, 280, 281. 

Erie Canal. See Canal. 

Exchange, bills of, 190; difficul- 
ties, 176, 177 ; instruments of, 
185, 186. 

Extractive industries, 276 ; di- 
minishing returns, 111; gen- 
eral, 89-114. 

Factory, 27; definition, 135; 
effect on labor, 139; English 
system, 28, 33; modern idea | 
of, 135 ; organization, 143 ; I 



principle of, 140-142 ; system 
and commerce, 134. 

Field, Cyrus, 6. 

Fishing industry, 109, 110. 

France, attitude toward rail- 
roads, 262 ; population, 1800, 44. 

Futures, sale of, 181. 

Gallatin, Albert, report on 
manufacturing, 49, 50; report 
on roadways, 58. 

Germany, administration of rail- 
roads, 270 ; agriculture, 96- 
98; attitude toward railroads, 
262; canals, 74, 75, 117, 269; 
character of legislation, 252, 
253, 254; character of organ- 
ization, 5; class movement, 
288; classification of indus- 
try, 71, 72; commerce, 77, 78; 
compulsory insurance, 219; 
control of corporations, 247 ; 
dangers, 85; economic changes, 
70; economic conditions, 68, 
69, 275, 276; electric indus- 
try, 76; empire created, 83, 
84; future of the empire, 86; 
geography, 74; gilds, 209; 
government action, 205; gov- 
ernment control over re- 
sources, 114; government and 
industry, 79; growth of com- 
merce, 72, 73 ; industrial map, 
73; legislation, 74; lumbering, 
100, 104; mineral resources, 
105; natural resources, 76; 
political difficulties, 68; pop- 
ulation, 69, 70, 71; powers of 
government, 80 ; railroad rates, 
268; railroad system, 75, 76; 
restrictions on combinations, 
165; schools of commerce, 78, 
79; tariff, 71; the rise of, 68- 
86 ; union of confederacies, 
83; unity of, 84; wars, 81, 82. 



296 



INDEX 



Gold discoveries, 8, 34, 61; ef- 
fect of, 70. 

Government, activities of, 203; 
changed by economic condi- 
tions, 198; concept of func- 
tions, 29; control over indus- 
try, 241 ; enforcement of con- 
tracts, 218, 219; functions of 
state, 258; industry, 277; in- 
dividuals, 202 ; interference, 
216-234; ownership, 217, 256- 
272; ownership of telegraph, 
267 ; tendency toward central- 
ization, 263 ; tests of govern- 
ment ownership, 262. 

Grain, movement in the West, 
127; storage, 125, 126. 

Grange, legislation in United 
States, 63. 

Great Britain. See England. 

Hamilton, Alexander, report 
on manufactures, 47. 

Hadley, Arthur T., individual- 
ism, 234; responsibility of di- 
rectors, 158; of wealth, 206; 
speculation, 180, 181. 

Hobson, John A., on production, 
137. 

India, government of, and rail- 
roads, 266. 

Individualism, 201, 226; and in- 
terference, 219 ; combinations, 
225, 226; common law, 220; 
competition, 239; doctrine of, 
218; Hadley on, 234; modi- 
fication of, 214, 238; produc- 
tion, 240; remedies of, 285, 
286 ; results of, 235, 236, 237 ; 
Smith on, 29; sufficiency of 
common law, 224; value of, 
241. 

Industrial, causes of revolution, 



22-24; revolution, 28; results, 
29. 

Industry, classification, 71, 72; 
concentration, 148, 151; elec- 
tric, 76; domestic system, 
138; extent of, in Western 
settlements, 50 ; extractive, 
50, 51, 89-114; government, 
277; in Germany, 79; growth 
of organization, 277; in Unit- 
ed States, 56; localization, 
146-150; management and 
crisis, 194; map of United 
States, 57 ; meaning of, 89, 90 ; 
mechanical and administrative 
sides, 287 ; metal, 107 ; organ- 
ization of, 9, 157-175; organ- 
ization in Germany, 69, 70; 
problems of, 197-199; regula- 
tion of, 235-255 ; result of cap- 
italistic system, 259 ; small, 
77 ; specialized, in nations, 17 ; 
specialization, 134; state and 
private, 241; summary, 273; 
unity of, 176. 

Injunction against strikes, 231, 
232. 

Insurance, risk of, 179. 

Interest, community of, 168. 

Interference, individualism, 219; 
principles of, 223, 224; state, 
217. 

Internal improvements, in the 
West, 58; middle West, 54. 

Interstate Commerce Commis- 
sion, 66 ; a step in interference, 
245 ; control over rates, 122. 

Inventions, 5; industrial revolu- 
tion, 23 ; locomotives, 34 ; 
sewing-machines, 15. 

Iron, figures of production, 12; 
growth of industry in Eng- 
land, 26, 33; industrial ele- 
ment, 26; in the United 
States, 51. 



INDEX 



297 



Jefferson, Thomas, letter to, 
from Washington, 45, 46. 

Labor, burden of, problem, 287; 
cheap, incentive to manufac- 
turing, 147, 148; collective 
bargaining, 158 ; combinations, 
166; competition, 208; com- 
plaints of, 284, 285 ; conditions 
in England, 30, 32; coopera- 
tion, 174, 175; division of, 
115, 139; effect of factory sys- 
tem, 139; franchise in Eng- 
land, 38, 39; freedom of con- 
tract, 200, 226, 227 ; in United 
States, 1790, 43; laws relative 
to, 227 ; localization of, 150, 
151; movement in Germany, 
288 ; nature of contract, 228 ; 
organization, 65, 157, 158, 
170-174; remedies open to em- 
ployer against strikes, 231, 
232; strikes, 230; unions in 
England, 39; unlawful con- 
spiracy, 229, 230; women and 
children, 232. 

Lafayette, letter to, from Wash- 
ington, 45. 

Laissez faire. See Individualism. 

Land, extension of policy, 62, 
63; grants to railroads, 60; 
free in United States, 42, 44 ; 
policy of United States, 53 ; 
public, as a resource, 59. 

Lavasseur, E., 146, 153, 154. 

Legislation, anti-trust act, 163 ; 
difficulty in Germany, 74; dif- 
ferences in England, United 
States, and Germany, 253, 
254; lack of, 66; state and 
national, 249, 283. 

Localization, of industry, 148, 
150. 

Locomotives. See Railroads. 

Lumbering, forest management, 



104 ; in the United States, 98- 
105; logging, 99; methods em- 
ployed, 101, 102; saw-mill, 
103. 

Machine, parts denned, 136, 
137. 

Manufacturing, administration, 
154 ; agriculture, 46 ; as a fac- 
tor in exchange, 177 ; by ma- 
chinery, 137; definition, 134; 
division of labor, 139; domes- 
tic system, 44, 137 ; early 
stages in United States, 51 ; 
figures, 1 1 ; Gallatin's report, 
49, 50; Hamilton's report, 
47; in United States, 52, 55; 
interchangeable parts, 145, 
146; Minneapolis milling dis- 
trict, 149; relation to trans- 
portation, 133; restrictions on 
export of machinery, 49 ; 
standardization, 144, 145; 
steps in processes, 136; test 
of, 143, 144; use of waste, 
155, 156; Washington on 
early American, 45. 

Market, world's, 17; and the 
United States, 64. 

Marx, Karl, 140. 

Merchant marine, changes in, 
130-132; German, 73; sailing 
vessels, 131; ships and har- 
bors, 130. 

Meyers, H. R., 267. 

Mineral products, 8; wealth of 
England, 11; new methods, 
107, 108; ore extraction, 109. 

Mogul Steamship case, contracts, 
222, 223. 

Money, 183; United States sys- 
tem and the tariff, 64. 

Monopoly, 152, 214; checks to, 
204; control of benefits, 240; 
of resources, 112; ownership 



298 



INDEX 



by state, 260; state control, 
272. 

Nation, and industrial organ- 
ization, 134. 

New York Clearing House, 188. 

New Zealand, government owner- 
ship of railroads, 266, 267. 

North River Sugar Refining 
Company, rights of corpora- 
tion, 225. 

Oeganization, capital, 16; ex- 
tension of principles, 15, 16; 
industrial English, 31; na- 
tional, 3, 4; railroads, 120, 
122. 

Paktnebship, form of, 159. 

Production, beyond national lim- 
its, 16; dependency of trades, 
17; description, 139, 140; 
Hobson on, 137; large scale, 
151; old and new, 3; under in- 
dividualism, 240. 

Political history of century, 7. 

Politics, and business, 257. 

Pools, form in Europe, 164, 165 ; 
railroads, 123. 

Poor relief, English, 27. 

Population, England and France, 
44; Germany, 69, 70, 71; 
transportation, 116; United 
States, 1800, 43. 

Prices, regulation of, 248. 

Promoter, 252; in Europe, 165; 
and underwriter, 169. 

Property, private, 200; and in- 
dustrial problems, 278. 

Prussia, demand for railroad 
revenues, 261 ; government 
railroads, 263, 264. 

Railroads, and freight move- 
ment, 117; and land grants, 



60; and shipping companies, 
131; attempts to regulate, 
251; character of business, 
118; contest with canal, 60; 
early locomotives, 24; effect 
on agriculture, 92; English, 
34, 35, 36; experience in col- 
onies, 266; England and 
America, 118; financiering, 
124, 125; German system, 75, 
76 ; Grange legislation, 63 ; 
growth, 62; in United States, 
55; income, 122; Interstate 
Commerce Commission, 66 ; 
legislation, 246; legislation in 
England, 35, 36, 262; need of, 
58 ; organization, 120, 122, 
167, 168; outcome of problems, 
254; ownership in Australia, 
265; pools, 123; Prussia and 
Belgium, 263, 264; rates, 122, 
123; regulation, 242-246; re- 
sults of ownership by govern- 
ments, 267-278; to Pacific, 
63; train-loads, 119, 120; sit- 
uation in Germany, 1875, 
261,; specialization, 121; sta- 
tistics, 15; terminals, 125. 

Rates and canals, 129; science of 
making railroad, 268; test of, 
269, 270; state, 235-255. 

Regulation, state, 217. ' 

Reserves of banks, 189. 

Retail dealers as exchange fac- 
tors, 177, 178. 

Revolution. See Industrial. 

Roadways, breakdown of Eng- 
lish, 26. 

Rosebery, Lord, 16. 

Securities, negotiable, 9; trade, 

193. 
Sherman Act, 250, 251. 
Sidgwick, H., 225. 
Silk industry in England, 21. 



INDEX 



299 



Slater, Samuel, 49. 

Smith, E. J., companies, 165. 

Socialism, 213; and individual- 
ism, 214; and democracy, 261; 
government ownership, 256, 
257 ; in Germany, 85 ; program 
of state, 259, 260; purposes, 
212, 213; state, 258; state, ef- 
fects of, 235; variation in 
new, 286; scientific school, 216. 

Speculator, aid to production, 
182; function of, 179, 180. 

Standardization in manufactur- 
ing, 144, 145. 

State, and competition, 204; and 
labor restrictions, 227; argu- 
ment for action, 257, 258; 
classes in modern, 280; con- 
trol of monopoly, 240; corner- 
stones, 216; corporations, 161, 
162, 239; dangers confronting, 
283; economic problems, 214; 
enforcement of contracts, 22 1 ; 
functions of individualist, 232, 
233; future of present, 217; 
industrial problems, 197-199 ; 
interference, 223, 224; its 
powers, 284; labor troubles, 
228; laissez faire, 235-237; 
monarchical, 261 ; necessity of 
checks, 284; options open to, 
215; possible functions, 217; 
private interests, 240; public 
business, 241; public utilities, 
258, 259; purpose of, 290, 
291; regulation, 217, 218, 235- 
255; socialism, 216; summary 
of argument for action, 271, 
272. 

Steamships, comparison of ton- 
nage, 13; navigation, 36, 37; 
Oceanic, 14; Savannah, 6. 

Steel, cost of plant, 153; use of 
rails, 118; United States Com- 
pany, 142. 



Stimson, F. J., 227. 

Stock, preferred and common, 
168. 

Stock Exchange, 191, 192. 

Strikes, remedy of employer, 
231, 232; use of injunction, 
232. 

Suffrage, extension of, 282; fu- 
tility of restriction, 289. 

Sumner, W. G., 201, 202. 

Tariff, effects of, 64; Germany, 
71, 81. 

Telegraph, government owner- 
ship of, 267. 

Terminals, railroad, 125. 

Tool, to machine, 136. 

Trade, restraint of, 224, 248; 
settlement of international, 
191. 

Trade-unions, combinations, 213, 
214; as economic factors, 209- 
211; English, 39; equality 
and, 208; object of, 210; or- 
ganization of, 170-174. 

Transportation, 115-132; di- 
vision of labor, 115; growth of 
cities, 116; relation to manu- 
facturing, 133; under control 
of railroad, 131, 132. 

Trusts, advantages of, 163. See 
Corporations. 

Underwriters as a factor in 
combinations, 169. 

United States, agriculture, 43. 
45, 46, 91-94; attitude toward 
railroad, 262 ; broken frontier, 
63 ; character of legislation, 
249-251, 254; character of or- 
ganization, 5 ; combinations, 
166; commerce, 64; domestic 
system, 44; early stages of 
manufacturing, 5 1 ; economic 
conditions, 42-67, 274, 275, 



300 



INDEX 



281, 282; effect of Civil War, 
61; English goods in, 52; ex- 
tractive industries, 50, 51; 
free land, 42, 44; frontier ad- 
vance, 50; growth, 12; inter- 
nal commerce, 13; labor con- 
ditions, 43; lumbering, 98- 
105; mineral resources, 105, 
106; mixed legislation, 251; 
population, 43; problems, 287, 
288; regulation of railroads, 
244-246; size of farms, 93; 
social conditions, 53; the 
American workman, 148 ; 
weakness of state, 204, 205. 

United States Industrial Com- 
mission, 153, 155, 156, 164, 
172. 

United Steel Corporation, 162, 
163. 

Ure, Dr. Andrew, 134. 

Victoria. See Australia. 
Voting trust, 164. 



Wages system, 284, 285. 

Wars, Civil, 4, 7, 33, 55, 92; 

Franco-Prussian, 4, 7, 82; 

Napoleonic, 5, 26, 29; of 1812, 

52; Opium, 7. 
Washington, George, letters to 

Jefferson, 45; to Lafayette, 

45. 
Waterways. See Canals. 
Wealth, distribution of, 259, 

279; in England, 22; respon- 
sibilities, 206; United States, 

1800, 44. 
Webb, Sidney, equality, 281. 
Wheat production, 12. 
Wool industry in England, 21; 

production, 12; transition in 

England, 22. 
Workingmen's Party, 209. 
World contest, 4. 
Wright, Carroll D., on factory 

system, 135. 

Young, Arthur, 20. 



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